Charlotte Macdonald is a Senior Associate Solicitor (consultant) in Stone King’s international and cross-border team.
Charlotte answers legal and practical questions that are often asked by her clients in relation to France; whether that be buying or selling property in France, inheritance law, or how inheritance and capital gains tax are treated between the UK and France.
Here, she looks at how a family resident in the UK can navigate France’s inheritance law to ensure that all children from their blended family are treated the same.
Q: How can my parents, who are UK resident and own a holiday home in France, ensure that all their children are treated equally under French inheritance law upon their death?
In our society, ‘blended families’ are becoming more common. Although the definition of a blended family varies, it generally means a family in which the parents have had children from an earlier relationship. For example, mum has two children from her first marriage, dad has one child from his first relationship, and now mum and dad have one child together.
Although not all the children and parents are legally related to one another, this doesn’t mean that they see themselves as anything less than family. On mum and dad’s death they wish to treat all the children the same.
How can this be achieved?
Under English and Welsh law we can, broadly speaking, leave our assets to whomever we wish when we die. We can therefore leave our assets to our legal children, or to our step-children, in whatever shares we see fit. So, it is perfectly possible to treat your legal children and step-children equally in your Will.
Under UK inheritance tax law, children and step-children are both classed as non-exempt beneficiaries. This means that if inheritance tax is payable on your death, the same rate of tax applies (usually 40%), regardless of whether your child or step-child inherits.
It is therefore straightforward to treat your children and step-children equally in relation to your UK situated assets.
However, the position in France is different. Under French law it is not always possible to make a Will in which your children and step-children inherit the same amount, as under French law your legal children are protected and are entitled to a percentage of your assets on your death. If neither you or your children are EU nationals, or EU resident at the time of your death, you can elect for UK law to apply in your Will (if you are a British national). This means that you can leave your French property equally between your children and step-children.
Even if you do elect UK law in your Will to cover your French assets, your children and step-children may still be treated unequally due to French inheritance tax. In France, a legal child inheriting on your death has a tax-free allowance of up to €100,000 and pays tax on the excess at 5% to 45%. Meanwhile, a step-child inheriting on your death only has a very small tax-free allowance of €1,594 and pays tax on the excess at 60%.
This means that although you could state that you wish the two children to each receive 50% of your French home, your legal child will walk away with a much larger share after tax than your step-child.
Whether you can achieve equality between the children and step-children will depend on your circumstances.
If you are a UK resident and have assets in both France and the UK, you could consider leaving your French property to your legal child or children and another property or asset in the UK of a similar value to your step-child or children.
You may also be able to leave your French property to your legal child or children, and then include a clause in your UK Will in which you leave an amount of money to your stepchild or children that is equal to the net value (after tax) that your legal child or children received in France.
A solution which will work for one family may not work for another, so it is important to carefully review your Wills with a cross-border solicitor to ensure that you have explored all options available to you, if you wish all your children – legal or step – to inherit equally.
For more information please contact the international and cross-border team at Stone King LLP –Charlotte Macdonald, Dan Harris, Raquel Ugalde, Emma Seaton, Bryony Anning and Marina Emmanouel either by calling +44(0)1225 337599 or by emailing [email protected].
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