Will My Children Have to Pay Capital Gains Tax In France, the UK or Both if They Inherit My Property?

Capital Gains Tax (CGT) is tax levied in both the UK and France when certain assets (such as a second home) are disposed of for more money than they were acquired for.

The taxes are imposed differently in each country.

In the UK CGT is levied both when you give certain assets away (such as a holiday home) if they have gone up in value since you acquired them, and when you sell certain assets for a profit.

By contrast, in France CGT is not charged on a gift, but is charged when certain assets are sold for a profit.

Double taxation?

Broadly speaking, if you are tax resident in the UK, then your worldwide gains, including those arising in France, will be subject to UK CGT.

Those assets located in France will also be subject to French taxation.

This means if you are a UK tax resident and sell your second home in France, then it may be subject to CGT both in France and the UK!

It is important to note, however, that there is a double taxation convention between France and the UK that can help to minimise the effects of double taxation.

If on death you leave a property to your children which you purchased for a low value, and at the time of your death it has shot up in value, will your children need to pay CGT on the difference between what you paid for it, and the value of the property at the date of your death?

The answer to this question is, luckily, no. On death, both in France and the UK, there is an ‘uplift’ for CGT purposes.

For example:

• You are a British resident.
• You purchased a house in France for £100,000 some years ago.
• The house has shot up in value and is now worth £1,000,000.
• If you were to sell the property during your lifetime, there would be a large amount of CGT to pay in the UK (broadly speaking, 24% of the profit that you have made), and there may also be CGT payable in France, depending on how long you have owned the property for.
• However, if at the time of your death you still owned the property, regardless of how much it had gone up in value, there would be no CGT for your children to pay when they inherit.
• Your children would, for tax purposes, be deemed to have acquired the property with a base value of £1,000,000. They would only need to consider whether CGT would be payable if they subsequently sold the property for over £1,000,000.

Unfortunately, the answer is yes. Although your children won’t need to pay CGT, they may need to pay inheritance tax.