Inheritance Tax from 2005

[Deleted User]

8th September 2021

Good morning

I posted here as I couldn’t find a ‘General Tax’ discussion area. 

Thank you for taking the time to read this.  These questions relate to UK Taxes that ‘may’ be owed from the year 2005 to HMRC in the United Kingdom on a one third (33%) share of property inherited in 2005 in France. Please forgive my lack of detail as I am asking on behalf of an elderly person who is and always has been domiciled in the UK, who is mentally disabled and has had their affairs managed for them by their siblings abroad at that time.

On the Death of their Father in December 2005 in France, three children inherited the property he lived in. One child was a permanent long term resident in that property in France. One was a resident in France in the next town and the person I am asking on behalf of has always been resident (domiciled) in England and have been on benefits for the last 30 years and registered disabled.

In an effort to help them understand and solve some issues that will arise, should this property be sold next year, we have sat down and talked about what would happen and how the sale would affect this persons Benefits in relation to Capital Gains Tax and the loss of some Benefits. This has been well investigated and is for the most part clearly understood. The Capital Gain for the one third share will have a negative impact in that the individual will loose their Pension Credit and Housing Benefit and they would prefer not to receive their share of the sale of the property as the destabilising affect to their life and benefits is very frightening but non the less, nothing can be done about this. 

In conversation and asking who has and where is the paperwork for events that happened in 2005 (the parents death) I understood that about €90,000 euros in total, was paid in ‘Death Duties’ to the French Government in 2005. The three children seem very disorganised and aren’t sure where paperwork is or who has it so it makes the information I provide today challenging but I believe when they refer to ‘death duties’ they mean French Inheritance Tax. I am also hopeful that a Notaire will have a record of the events and paperwork.

After establishing what was paid to the French Government I asked the sibling who resides in England how much Inheritance Tax they paid to HMRC in 2005, to which they replied, they don’t think anything was paid to the UK Government only to the French Government. Asking delicately, and realising the potential consequences, I’m convinced that taxes were paid in France at that time for all three children, as required, but not for the one child who lives in the UK. 

So were the property to be sold at sometime in the future I am clear that Capital Gains tax would need to be paid on their behalf for their one third share of the property’s ‘Capital again’ from the (difference between) the determined value in 2005 to the actual sale price in 2022. I am also clear that (at present) although Capital Gains needs to paid in both countries, there is an offset allowing what is paid in one country, France, to be considered against what needs to be paid in the other, England.

What I am not clear about in any way, is,  what would happen ‘if’ UK Inheritance Tax was owed to HMRC from the inheritance (one third share) of the property in 2005? It was not possible at that time to sell the property as one of the children was living in it with their Father for 20 years before his death and continues to live in it now. All affaires were managed in France by this persons two siblings but they made no mention of UK inheritance tax for their sibling and have made no mention since. I’m not sure if they were aware they needed to consider this.

Please could an experienced Tax person (if possible) offer their thoughts on this situation. 

I have thought of some questions that may be relevant or may not. Please forgive my lack of knowledge in this area.

Would UK inheritance tax have been due at the time (2005) on the one third share? Estimated property value €1,200,000 euros total value at that time. €90,000 euros in total paid to French at that time. The above are total amounts…not (33%) individual share.

At that time (2005) and currently, was there, is there, any such ‘offset’ or agreement to consider Inheritance Tax paid in France, against Inheritance Tax (if any was owed) in the UK?

Presumably, if UK Inheritance tax was owed from 2005, interested would be owed? 

How could I calculate what was owed at that time?

Penalties, Fines and Consequences for failing to pay at that time?

Does it make any difference that someone else was managing their affairs at that time?

Please offer you thoughts and any other considerations you feel prudent.

Thank you

Jeremy535897

Before getting into the detail, the most important point is where was the father domiciled for inheritance tax purposes at the date of his death? If he was domiciled in France, and the property is in France, there is no inheritance tax on his death in respect of the property. It is irrelevant that one of the legatees is domiciled in the UK.

I know nothing of French capital taxes, but I think they should have applied on the death, wherever the legatees were domiciled and/or resident.

[Deleted User]

Good morning Jeremy535897.

In 2005 the Father was domiciled in France and had been resident there and paying French taxes there since 1985. On passing away in December 2005 the three children paid €90,000 Death Duties. I have no idea if they mean French Inheritance Tax or if Death Duties means a different form of tax in France. My sole concern is, ‘was the UK domiciled child, at that time, required to pay UK Inheritance tax on their third share of the Villa they inherited as wells as the Death Duties they paid in France.

[Deleted User]

Jeremy535897 said:

….If he was domiciled in France, and the property is in France, there is no inheritance tax on his death in respect of the property. It is irrelevant that one of the legatees is domiciled in the UK.

Do you mean by the above paragraph that if The Father was domiciled in France and the property he owned and lived in at the time was in France…then “there is no (UK) Inheritance tax (to be paid) in respect of the property” (by the sibling domiciled in the UK at that time in 2005 or now in 2021?

Keep_pedalling

Deleted_User said:

Good morning Jeremy535897.

In 2005 the Father was domiciled in France and had been resident there and paying French taxes there since 1985. On passing away in December 2005 the three children paid €90,000 Death Duties. I have no idea if they mean French Inheritance Tax or if Death Duties means a different form of tax in France. My sole concern is, ‘was the UK domiciled child, at that time, required to pay UK Inheritance tax on their third share of the Villa they inherited as wells as the Death Duties they paid in France.

No, beneficiaries don’t not pay IHT the estate does, and in this case all inheritance taxes were French ones, there would have been no UK taxes to pay.

CGT on sale will also be payable in France, but if that amount is less than UK CGT there may be some UK tax to pay as well. 

[Deleted User]

Thank you! I hope that correct for both the Inheritance Tax and Capital Gains Tax both both France and England. It will be some relief to the gentleman that he won’t owe from 2005 to HMRC and will only owe Capital Gains tax once the sale happens but can offset some of what is paid in France. The poor chap doesn’t want any of this money at all and he’s going to loose Benefit once he receives it. At least he can make a few improvements and buy some things for his health and mobility. Thank you Keep_pedalling. Fingers crossed

Jeremy535897

Deleted_User said:

Jeremy535897 said:

….If he was domiciled in France, and the property is in France, there is no inheritance tax on his death in respect of the property. It is irrelevant that one of the legatees is domiciled in the UK.

Do you mean by the above paragraph that if The Father was domiciled in France and the property he owned and lived in at the time was in France…then “there is no (UK) Inheritance tax (to be paid) in respect of the property” (by the sibling domiciled in the UK at that time in 2005 or now in 2021?

Yes. If the deceased died domiciled in France, with an estate of French property, why would the UK have any right to tax it? (If we tried, Waterloo would be repeated.) On the sibling's death it will form part of his estate for UK (and French, if the property is still owned) inheritance tax purposes, but that is a different matter.

There will be a capital gain on the sale of the property equal to his share of the sterling equivalent of the proceeds, less selling costs, minus the value in December 2005. France has the right to tax this gain, and to the extent they do, any French tax paid may be deducted from the UK capital gains tax liability.

[Deleted User]

That’s Great news Jeremy!  Keep_Pedalling said the same. What a relief! It’s just one less thing to worry about. I’ll also remember about the selling fees as deductible. Thank you… 

[Deleted User]

“France has the right to tax this gain, and to the extent they do, any French tax paid may be deducted from the UK capital gains tax liability”. 

Jeremy, Good afternoon.

May I ask, Although the French Government may present a ‘Capital Gains’ tax invoice/receipt, I have looked at one this morning and it is actually broken into a ‘Capital Gains’ side and ‘Social Levy’ side, something akin to a tax for Social Services. I am lead to believe that although this is presented as a tax it is not actually and therefore not deductible against any UK Capital Gains tax. Only the Capital Gains side is able to be deducted. Is this correct? I completely understand that French Tax law may not be your area but from a UK Tax perspective have you heard anything like this.  Thank you.

Jeremy535897

No, but I suggest you read articles 2 and 24 of the UK-France double tax agreement, which define the taxes covered, and the elimination of double taxation. It may be the "social levy" is covered by the definition in article 2(b).

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/496672/france_dtc_-_in_force.pdf

[Deleted User]

Ok… Will do. Thank you.