Charlotte Macdonald, a specialist international and cross border solicitor at Stone King experienced with dealing with Anglo/French matters, answers frequently asked questions relating to UK inheritance tax when owning property in France.
UK Inheritance Tax
If you are ‘domiciled’ in the UK, your worldwide assets will be taken into account when calculating how much inheritance tax your executors will need to pay in the UK.
This means that any property you own in France will be taken into account when calculating UK inheritance tax.
How much can I leave free of inheritance tax?
The value of your estate is everything that you own at the date of your death, less any debts. The total value of your estate will decide if UK inheritance tax needs to be paid. If it does, your executors will arrange for this tax to be paid before paying other debts and distributing the remainder of your assets to your beneficiaries.
Everyone can leave £325,000 tax free. This is known as the nil rate band.
This tax year (2018/2019) everyone can also leave an additional £125,000 free of inheritance tax, but only if they leave their home to their children, step-children or grandchildren. This tax allowance is known as the ‘residential nil rate band’.
Everything that is left to a spouse or civil partner passes inheritance tax free. This means that if your spouse or civil partner leaves you all their assets, when you pass away your combined tax free allowance can be used together – currently a total of £900,000.
The residential nil rate band will be increasing by £25,000 in April each year until 2020 so that by 2020 it will in fact be worth £175,000 per person.
Can my UK tax free allowance be used to cover my property in France?
For those people who live in the UK but own property in France, it is useful to know that the residential nil rate band can be applied to their property in France, provided they have used this property as their home at some point in time. This can reduce UK inheritance tax.
To give an example, Mr and Mrs Smith (an English couple) own a flat in the north of England valued at £100,000. They also own a villa in France valued at £250,000 and have savings and investments of £550,000 located in the UK. A total of £900,000.
Mr and Mrs Smith retired to France from the UK 10 years ago. Mr Smith falls ill and sadly passes away, leaving all his assets to his wife. She decides to relocate back to England to be closer to her family but decides to keep the French villa and rent it out.
Following her return to the UK, Mrs Smith falls ill and also passes away. In her will she leaves all her assets to her children. Her executors can choose to apply the residential nil rate band to the French villa rather than the English flat. If they do this, there will be no UK inheritance to pay because the £250,000 residential nil rate band (the couples combined tax free allowance) will cover the value of the French villa and their combined nil rate band will cover the remainder of the Smith’s assets (£650,000).
The residential nil rate band will be useful in reducing UK inheritance taxes in some circumstances. However, it is very important to note that French inheritance and succession taxes may also be due on any French property, in addition to UK inheritance tax. Depending on your circumstances it may be possible to offset some of this tax against any tax payable in the UK by virtue of the Anglo/French double taxation treaty of 1963.
I’ve heard that the EU Succession Regulation means I can choose English law to apply to my will. Does this mean I only have to pay English inheritance taxes?
No, the EU succession regulation only applies to succession (who gets what when you die). It does not directly affect inheritance tax payable in France.
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