Will French inheritance attract charge?
Financial Times 25.1.08 by Steve Lodge
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My partner of more than 30 years - to whom I was not married - died recently and I am the sole beneficiary of his will. We have jointly owned a house in France through a Sociètè Civile Immobiliere (SCI) company structure since 2002, with my partner's daughter also having a very small share, although the property was entirely bought with my own money at the time for £80,000. It is now worth about £200,000. Does this inheritance form part of my partner's estate in the UK and hence subject to inheritance tax? The vast majority of the rest of his estate is a £500,000-plus quarter-share in a private UK company. Given these three complicated elements: being unmarried, a French property, and a privately held business, where should I go for advice?
Patrick Hamlin, of the contentious trusts and succession group at law firm Withers, says some UK residents purchasing a French property do so through an SCI - a company structure designed to avoid the complexities of French succession law, such as the rules on forced heirship which require you to leave a fixed share of your estate to your children or (if none) your spouse.
The shares in the SCI are treated as moveable property and thus subject to English law when it comes to administering your late partner's estate.
However, you still have to pay French succession tax on a half share of the French house. This is likely to be taxed at a rate of 55 to 60 per cent of the ??inherited?? share.
Assuming your partner was domiciled in England, inheritance tax is payable on his worldwide estate. The good news however is that Business Property Relief is likely to be available in relation to the shares in the private UK company.
Business Property Relief provides up to 100 per cent relief from IHT on qualifying shares in private companies, irrespective of who inherits those shares.
Given that the IHT threshold is now £300,000, there should not be any tax payable. If there are significant other assets taking the chargeable portion of the estate above £300,000, then HMRC will allow a credit in respect of any French succession tax paid.
I suggest you instruct an English firm of solicitors experienced in the administration of estates with a French element.
Details of such solicitors practising in your area can be obtained from the Society of Trust and Estate Practitioners at www.step.org.
Exemptions for
misselling payout
Wealth Questions (December 1/2) explained how compensation for missold split-capital investment trust shares is likely to be tax-free under extra statutory concession (ESC) D33. As well as this compensation ordered by the Financial Ombudsman Service (FOS), would payouts from Fund Distribution Ltd (FDL) - a company set up to deal with split-capital compensation - also be exempt from capital gains (and other) tax under ESC D33?
Leonie Kerswill, tax partner at accountants PricewaterhouseCoopers says payouts from Fund Distribution Ltd (FDL), unlike the compensation payments discussed in the previous response, will not be exempt from capital gains tax and will be treated as capital receipts.
FDL payments have been made to all qualifying investors who have suffered a financial loss relating to the ownership of certain specified zero dividend preference shares (zeros).
Accordingly, in this situation the payments will be treated under the ESC D33 "Zim concession" as derived from the zeros and so are not tax-free.
However if the claimant has capital losses or an unused annual exemption then these can be used to offset any chargeable gain arising on receipt of the distribution from FDL.
And if the investment on which the payout is received was held within a structure permitting the tax-free realisation of capital gains - such as a Pep or an Isa - at some point between 1 July 2000 and 30 June 2002, and is still held in a Pep or Isa (though not necessarily the same one) when the distribution is paid, it can be retained in that Pep/Isa and can be received tax-free.
Limited transfer between spouses
Wealth Questions (January 5/6) said that unlimited transfers between spouses have been exempt from inheritance tax since March 13 1975. But doesn't this depend on the spouse having been UK domiciled for 17 out of the last 20 years; and if that hasn't been the case then are IHT-free transfers restricted to £55,000?
Tim Gregory, partner in the private wealth team at accountants Saffery Champness says that unlimited transfers between spouses have been exempt from inheritance tax (IHT) since March 13 1975, but this is only for transfers to UK-domiciled spouses, and it does depend on the receiving spouse being domiciled in the UK for IHT purposes.
Where the spouse receiving the transfer is not UK-domiciled, then there is a cumulative lifetime limit on amounts or asset values that can be transferred to him or her before IHT becomes potentially chargeable. This limit is currently £55,000, but it was £15,000 back in March 1975.
The advice in this column is specific to the facts surrounding the questions posed. Neither the FT nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.
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