Brexit and Inheritance Tax: What’s Likely to Change?

Brexit and Inheritance Tax: What’s Likely to Change?

Charlotte Macdonald is an associate solicitor in Stone King’s international and cross border team. Over a 12-part series of articles Charlotte will answer legal and practical questions that are often asked by her clients in relation to buying or selling property in France, inheritance law, and how inheritance and capital gains tax are treated between the UK and France.

Will Brexit affect inheritance tax between the UK and France?

The UK and France assess and charge inheritance tax in different ways:

Inheritance Tax in the UK

In the UK, on death, the net value of the deceased’s estate (their assets minus any outstanding debts) is calculated. The executor or personal representative will carry out this calculation. Once they have ascertained the net value of the estate, they will then minus any tax free allowance available to the deceased’s estate, and the resulting figure will be the amount on which UK inheritance tax is calculated.

With the exception of a few special beneficiaries (such as spouses and charities), inheritance tax is charged at the flat rate of 40%. The balance of the estate can then be distributed to the beneficiaries. The tax rate payable is 40% regardless of whether the beneficiaries are children, remoter family members or friends.

For example:

  • Net estate of the deceased at death £1,000,000
  • Minus the available tax free allowance (£325,000)
  • Taxable estate £675,000
  • Inheritance Tax at 40% £270,000
  • Balance available to distribute to the beneficiaries £730,000

Inheritance Tax in France

In France, rather than the deceased’s estate having a tax free allowance, it is the individual beneficiary.

For example, if a child is to inherit, they have a tax allowance of €100,000 and they pay tax on a sliding scale between 5%-45% on the balance of their inheritance. If a non-related person where to inherit (such as a step-child) they only have a tax free allowance of €1,594 and pay tax at the flat rate of 60% on the balance of their inheritance.

Assets in both France and the UK – The Anglo/French Double Taxation Treaty

Broadly speaking if the deceased died domiciled within the UK, HMRC will want to assess inheritance tax on all their worldwide assets. If the deceased died domiciled in France, the French tax authorities will want to assess inheritance tax on all their worldwide assets.

This means that in some circumstances both HRMC and the French tax authorities will want to charge inheritance tax on the same asset. For example, where a person died domiciled in the UK, but owned a holiday home in France.

To help prevent double taxation in this type of situation there is a 1963 double taxation treaty in relation to inheritance taxes between the UK and France. This treaty helps to confirm which country can tax which assets. If any tax is paid twice (once in the UK and once in France) the double taxation treaty confirms how the twice paid tax can be reclaimed. It will depend on a person’s circumstances, and who they leave their assets to on their death, as to whether more inheritance tax will be payable in France or the UK.

Is it possible to choose which country to pay the tax in?

It is not possible to choose whether HMRC taxes your assets or whether the French tax authorities tax your assets. This is determined by the Anglo/French double taxation treaty.

Will Brexit affect inheritance tax between the UK and France?

The short answer is that it seems very unlikely in the short to medium term. The double taxation treaty was entered into in the early 1960s – before the EU as we know it was in existence. As the treaty is not a piece of EU law it will not be revoked automatically on Brexit (regardless of whether there is a deal or not).

Of course, the UK and France may choose to renegotiate the treaty in the future, but for now there is no indication that this will happen anytime soon.

European law

In 2015 a new EU regulation came into force (650/2012). This regulation is more commonly known as Brussels IV or the Succession Regulation. It gives people the option to elect for the inheritance laws of their nationality to apply on their death. It is important to note that the Succession Regulation does not give people the ability to choose which country’s inheritance tax regime their assets will fall under following their death.

For more on how your estate will be affected by inheritance tax on your death, please contact Charlotte Macdonald, Dan Harris or Raquel Ugalde at Stone King LLP either by calling +44(0)1225 337599, or via email.

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Charlotte (TEP) is a Senior Associate solicitor in Stone King's international and cross border succession team dealing exclusively with work which includes international and cross-border element. Charlotte joined the firm as a trainee in 2013 before qualifying as a solicitor in 2015 and beginning work in her specialist area of work. Charlotte brings to Stone King a wealth of non-legal experience. She completed her undergraduate degree in International Relations, before (as a Canadian qualified snowboarding instructor and climbing enthusiast) working abroad in the snow sports industry for several years.

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