Inheritance Tax on Franco-British Estate

MonsieurT

Hello. Hope someone can help.

My mother sadly passed away recently in France. She was French and domiciled in France the last 20-odd years but previously lived several decades in the UK, where she was married and had children. This included about 25 years where her main residence was a house in which she had approx. a 60% share - my sister and I split the other 40%. My sister and I, both adults and domiciled in the UK, live in this property. My mother's share is worth about £750k at current prices.

My mother also leaves the small house she owned in France, worth about £85k and some money, another £34k or so.

Questions naturally arising for me, as I try to sort out this cross-Channel 'mess'(starting on the French side) are:

* Which estates will count for inheritance purposes on the UK side?

* Which estates will count for inheritance purposes on the French side?

* Does the residence nil-rate band add-on apply to the UK property as it once was my mother's main residence, albeit years ago?

* Does the cross-Channel nature of the situation entitle my sister and me to an extra 6 months before interest becomes due on eventual IHT payments?

Any help appreciated!

Keep_pedalling

MonsieurT said:

Hello. Hope someone can help.

My mother sadly passed away recently in France. She was French and domiciled in France the last 20-odd years but previously lived several decades in the UK, where she was married and had children. This included about 25 years where her main residence was a house in which she had approx. a 60% share - my sister and I split the other 40%. My sister and I, both adults and domiciled in the UK, live in this property. My mother's share is worth about £750k at current prices.

My mother also leaves the small house she owned in France, worth about £85k and some money, another £34k or so.

Questions naturally arising for me, as I try to sort out this cross-Channel 'mess'(starting on the French side) are:

* Which estates will count for inheritance purposes on the UK side?

Her share of the UK house only.

* Which estates will count for inheritance purposes on the French side?

All her assets, although the double taxation agreement between the UK and France will mean any tax paid in the UK will offset the French taxation 

* Does the residence nil-rate band add-on apply to the UK property as it once was my mother's main residence, albeit years ago?

No, afraid it will not.

* Does the cross-Channel nature of the situation entitle my sister and me to an extra 6 months before interest becomes due on eventual IHT payments?

Any help appreciated!

UK IHT will still be due within 6 months although you will be able to opt to pay in instalments, so you would need to raise 10% of the amount due if you can’t make the full payment in time.

You will almost certainly need professional help to deal with the French side of this. 

MonsieurT

Thanks for your reply, Keep_pedalling.

Was trying to avoid selling the UK house but it doesn't look good in that respect. As a carer, I don't have the income to deal with massive yearly payments.

Jeremy535897

You should consider the following points.
1. Was your mother definitely domiciled in France under UK law, or the tie-breaker article in the UK-France inheritance tax agreement, at the date of her death?
2. Could your mother have the benefit of your father's nil rate band and RNRB, or did he use them, or were they divorced?
See https://www.legislation.gov.uk/uksi/1963/1319/schedule/made
This is one of those cases where you need advice that unfortunately is well beyond anyone contributing on this forum.

MonsieurT

Hello Jeremy. Thanks for your input.

1. Yep, definitely domiciled in France.

2. My father's NRB and RNRB were used when we did a Deed of Variation to his will in 2021. A share of my sister's and my inheritance went to my mother and we avoided IHT altogether. It was a case of kicking the can down the road.

I am still not sure if the RNRB doesn't apply since the relevant GOV UK site presents the criteria for application as:

"

* deceased died on or after 6 April 2017 [yes]

* estate includes a residence owned by the deceased [yes]

* residence in the estate is inherited by the direct descendants of the deceased [yes]

"

or does it not apply because my mother was a non-UK resident? In that case, does the NRB even apply? <<Shudder>>

I did seek advice from someone supposedly from a firm dealing with international inheritance scenarios but he didn't really tell me anything I hadn't already gleaned from the interwebs. He confirmed the tax 'credit' from the French side to offset the tax due on the UK side, based on the bilateral convention to prevent double taxation. I think that means that in a scenario where the UK liability were say £120k and the French liability £80k, I would pay UK IHT and nothing in France, so that, in theory, the inheritance on the French side could pay for the UK IHT. At least I hope so!

As you say, this requires specialist treatment, but where to find such a firm (and not be taken to the cleaners for the international 'specialist' credentials)...

Jeremy535897

I think this is helpful (from the 1963 agreement):
(3) Where a Contracting Party imposes duty on the death of a person who at the time of his death was domiciled in the territory of the other Contracting Party, the former Party shall allow any exemption, allowance or relief, or any remission or reduction of duty (other than in respect of duty imposed by the other Party or by any other country) which would have been applicable under its law if the deceased had been domiciled in its territory.

I read this to say that if mother was domiciled in France but pays UK IHT, the UK has to give her the RNRB as if she were domiciled here, but I am no expert in this very complex area. Someone who is a member of STEP may be able to help, as suggested above. In any event, so long as the property is a UK residence, there appears to be nothing to stop a RNRB claim even without the DTA. Without father's allowances, though, you may still struggle to keep the home as your estimated value is well over £500,000. There will be some discount for the fact the home was jointly owned (probably as tenants in common). There are also France's forced heirship rules to consider as well as French tax on the estate.

xylophone

https://www.kentingtons.com/taxation/inheritance-tax-in-france/

might be a possibility.

MonsieurT

Jeremy535897 said:

"[...] Without father's allowances, though, you may still struggle to keep the home as your estimated value is well over £500,000. There will be some discount for the fact the home was jointly owned (probably as tenants in common). There are also France's forced heirship rules to consider as well as French tax on the estate."

Well, if the French-side tax burden is less than the British side, as I understand it, that means nothing to pay on the French side in re UK property and since the French property is under the nil-rate band for 2 direct descendants, nothing to pay there? In theory I can use French estate to pay the IHT but I may be dreaming...

(Not worried about forced heirship as all heirs are the deceased person's children in this case.)

Thanks Jeremy and Xylophone. Looking into it more and will call legal eagles til a clear picture emerges!

Jeremy535897

MonsieurT said:

Jeremy535897 said:

"[...] Without father's allowances, though, you may still struggle to keep the home as your estimated value is well over £500,000. There will be some discount for the fact the home was jointly owned (probably as tenants in common). There are also France's forced heirship rules to consider as well as French tax on the estate."

Well, if the French-side tax burden is less than the British side, as I understand it, that means nothing to pay on the French side in re UK property and since the French property is under the nil-rate band for 2 direct descendants, nothing to pay there? In theory I can use French estate to pay the IHT but I may be dreaming...

(Not worried about forced heirship as all heirs are the deceased person's children in this case.)

Thanks Jeremy and Xylophone. Looking into it more and will call legal eagles til a clear picture emerges!

You would nominate the UK property for the RNRB as the French property is not eligible. The estate subject to UK tax could be £750,000 (albeit a discount may apply) less £500,000, which is still £100,000 of IHT.

MonsieurT

Just wanted to update this thread in case anyone else has similar queries in the future.

Keep_Pedalling above has most of the answers covered but he was not correct concerning the Residential Nil-Rate Band. As heirs to a property that my mother once inhabited and in which she retained a share of ownership, we did in fact obtain the RNRB, so the total non-taxable amount was the full £500K.

Also, at the 11th hour before submitting the IHT forms, we learned from the solicitor that we were entitled to a 15% relief on the valuation of my mother's UK property (or share thereof) which knocked a potential IHT bill of £65k down to around £25k!

To round things off, I found there was a smidgen of Nil-Rate Band left over from my father's estate, which knocked another £1000-odd off the tax bill.

This is all good news, at least relatively-speaking considering we have to pay over £2000/year for 10 years for no good or moral reason other than "HMRC says so"...

As for the French side of things, that's another story... If anyone knows a good way to get out of paying them a potential bill over 3x higher than the UK one, I'm all ears. Does it involve leaving the country with no forwarding address?

Jeremy535897

"There will be some discount for the fact the home was jointly owned (probably as tenants in common)." (My comment of 5 June)
Also, at the 11th hour before submitting the IHT forms, we learned from the solicitor that we were entitled to a 15% relief on the valuation of my mother's UK property (or share thereof) which knocked a potential IHT bill of £65k down to around £25k!
Just to clarify, I assume this was the same point?