Recently announced changes to the non-domicile system in the UK could be extremely beneficial for Brits living in France.
British expats living in France may soon pay no UK inheritance tax
By Richard McCreery
This article is published on: 10th April 2024
The Chancellor of the Exchequer, Jeremy Hunt, said in his Budget speech in March that the government intends to reform the existing Inheritance Tax scheme which is based on domicile rather than residency. In legal terms, your domicile is considered to be the country to which you have the strongest ties and that is often simply due to the fact that you were born there.
Relinquishing your UK domicile is very difficult, even if you have lived outside of the country for many years. Domicile tends to be permanent, unlike residency for tax purposes which changes according to your home, your centre of interests and where you spend most of time throughout the year. The Teflon-like nature of domicile means that the UK can still apply its 40% rate of Inheritance Tax to your estate when you die and, at the same time, all your worldwide assets can fall into the scope of French inheritance tax if you live full-time in France.
However, from April 2025 this situation should change so that British expats in France will no longer be taxed in both countries if they have lived abroad for more than 10 years and they have no assets in the UK. The detail is not yet set in stone, but this is our current understanding of how the new rules will work. The changes might encourage some people to consider moving assets out of the UK in order to avoid any liability there, and the government knows this, so we’ll have to see the finalised details before we can judge how beneficial the changes really are. The prospect of a new party in government following this year’s general election also adds a further element of uncertainty about what the rules will eventually look like.
France also applies Inheritance Tax at rates that can be quite punishing in some circumstances. Beneficiaries can inherit a defined amount of money tax free, depending on their relationship to the deceased, but these allowances can be swallowed up quite quickly, especially where a property is included in the estate. Fortunately, France does provide residents with some very attractive ways to reduce any such tax bill and with the right advice an ordinary family can shelter hundreds of thousands of Euros from Inheritance Tax.
If you would like to discuss your family’s estate planning, or any other financial issues that are important to you, please get in touch to arrange a no-obligation meeting or conversation.