Until the introduction of a French finance law in 2011, there had been a lot of uncertainty surrounding the French treatment of trusts. Since then, a new regime has brought in different rules regarding the inheritance and gift tax, wealth tax and income tax treatment of trusts.
There is now an obligation for trustees to declare the existence of trusts to the French tax authorities if the settlor or any of the beneficiaries are French resident, or if any trust assets are situated in France. Penalties apply if these obligations are not met, and it was announced at the end of 2013 that these are set to increase. The trust declarations must be filed annually during the trust’s lifetime, and further declarations are required if the trust is modified or wound up.
The new regime has also introduced specific tax rates and rules applying to trusts which vary depending on the circumstances. Discretionary trusts, for example, will be subject to tax at 60% and therefore careful planning is to be advised.
Tax charges will occur either when assets are transferred to beneficiaries or on the death of a settlor, regardless of whether or not the assets remain in trust. This means that there may be tax charges on the death of each generation of beneficiaries.
Consequently, it is important to think carefully before settling any French property on trust, or before including anyone who is a French resident as a beneficiary. Furthermore, should a beneficiary of a trust move to France, it may be appropriate to think about excluding them. For those already affected, there may be possibilities for reducing the impact of the regime; for example, deciding to wind up the trust. There are many factors that will require consideration, however, such as the inheritance tax and capital gains tax implications in both the UK and France.
Should you be the settlor, trustee or beneficiary of any trust with a French connection, it is important to be aware of whether these new rules impact on you. It is also likely that your estate will be affected on your death if you or any of your beneficiaries are French resident, or if you own French property. This is because the law has been drafted in a wide reaching manner so that trusts arising on death under a will or intestacy will be included within the new rules.
One of the most important steps to consider is the preparation of a separate French Will, so as to avoid your estate becoming subject to the French trust regime. If your French property passes under your English Will, it is likely that it will be caught by the trust rules simply by virtue of the fact that the assets will come to be under the control of the executors or administrators. By preparing a separate French Will dealing with the French assets you are therefore likely to simplify matters for your executors and beneficiaries.
For individual advice, please contact Matthew Cameron here.
We at Cle France - The French Property Network are proud to work in partnership with Ashton KCJ - Legal services. If we think our clients need further legal advice or have a specific legal question that needs solicitor involvement when buying or selling a property in France we can recommend Matthew Cameron and his team for expert advice.
