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Inheritance Planning in France

By Sue Regan - Topics: France, Inheritance Tax, Le Tour de Finance, Wills
This article is published on: 3rd August 2018

03.08.18

Despite the importance of making sure one’s affairs are in order for the inevitability of our demise, very few people actively seek advice in this area and, as a result, are unaware of the potential difficulties ahead for their families and heirs, not to mention potential tax bills which can be quite substantial for certain classes of beneficiary.

The basic rule is, if you are resident in France, you are considered also to be domiciled in France for inheritance purposes and your worldwide estate becomes taxable in France, where the tax rates depend upon the relationship to your beneficiaries.

Fortunately, there is no inheritance tax between spouses and the allowance between a parent and a child is reasonably generous, currently €100,000 per child, per parent. For anything left to other beneficiaries, the allowances are considerably less. In particular, for step-children and other non-related beneficiaries, the allowance is only €1,594 and the tax rate on anything above that is an eye-watering 60%!

There are strict rules on succession and children are considered to be ‘protected heirs’ and so are entitled to inherit a proportion of each of their parents’ estates. For example, if you have one child, the proportion is half; two children, one-third each; and if you have three or more children, then three-quarters of your estate must be divided equally between them.

You are free to pass on the rest of your estate (the disposable part) to whoever you wish through a French will and, in the absence of making a will, if you have a surviving spouse, he/she would be entitled to 25% of your estate.
You may also be considered domiciled in your ‘home country’ and if so, this could cause some confusion, since your home country may also have the right to charge succession taxes on your death. However, France has a number of Double Taxation Treaties (DTT) with other countries covering inheritance. In such a case, the DTT will set out the rules that apply (basically, ‘which’ country has the right to tax ‘what’ assets).

For example, the 1963 DTT between France and the UK, specifies that the deceased’s total estate will be devolved and taxed in accordance with the person’s place of residence at the time of death, with the exception of any property assets that are sited in the other country.

Therefore, for a UK national who is resident in France, who has retained a property in the UK (and does not own any other property outside of France), the situation would be that:
• any French property, plus his/her total financial assets, would be taxed in accordance with French law; and

• the UK property would be taxed in accordance with UK law, although in theory, the French notaire can take this asset into account when considering the fair distribution of all other assets to any ‘protected heirs’ (i.e. children).

If a DTT covering inheritance does not exist between France and the other country, with which the French resident person has an interest, this could result in double taxation, if the ‘home’ country also has the right to tax the person’s estate.
Hence, when people become French resident, there are usually two issues:
• how to protect the survivor; and
• how to mitigate the potential French inheritance taxes for other beneficiaries.

European Succession Regulation No. 650/2012
Many of you will no doubt have heard about the EU Succession Regulations that came into effect in 2015 whereby the default situation is that it is the law of your place of habitual residence that applies to your estates. However, you can elect for the inheritance law of your country of nationality to apply to your estate by specifying this in a French will. This is effectively one way of getting around the issue of ‘protected heirs’ for some expats living in France.

However, the UK opted out of the Regulations and therefore, it is not yet certain how effective the EU Regulations will be until there have been some test cases. I would always recommend that you discuss this in more detail with a notaire who can advise you on the subject of French wills.

If, after taking the advice of a notaire, it transpires that this is the best course of action for you to achieve your inheritance objectives, it is important to note that the French inheritance tax rules will still apply. Therefore, even though you have the freedom to decide who inherits your estate, this will not reduce the potential inheritance tax liability on your chosen beneficiaries, which, as mentioned above, could potentially be very high for a step-child. Hence, there will still be a need to shelter financial assets from French inheritance taxes.

Inheritance planning for French residency can be very complex, especially where there are children from previous relationships. This is often the starting point of my discussions with a prospective client. Most couples with children that I come across want their spouse or partner to inherit everything upon first death and for the children to inherit on second death. This isn’t possible under standard French Succession law, but it can be achieved by putting in place strategic planning, which is something on which we can provide advice.

If you would welcome a confidential discussion about your own inheritance planning, the mitigation of inheritance taxes for your chosen beneficiaries or a general chat about your overall financial situation, please feel free to contact me by e-mail at sue.regan@spectrum-ifa.com or by telephone on 04 67 24 90 95.

In addition, you can meet me and other members of the Spectrum team at the Tour de Finance, which is once again coming to the stunning Domaine Gayda in Brugairolles 11300. This year’s event will take place on Friday 5th October 2018. Places are by reservation only and it is always well attended so book your place early by giving me a call or dropping me an email. Our speakers will be presenting updates and outlooks on a broad range of subjects, including:

Brexit
Financial Markets
Assurance Vie
Pensions/QROPS
French Tax Issues
Currency Exchange

So, if you are concerned about your investments and pensions in a post-Brexit world why not join us at this very popular event where you can meet the team in person and listen to a number of industry experts in the world of financial advice.

The Spectrum IFA Group advisers do not charge any fees directly to clients for their time or for advice given, as can be seen from our Client Charter at www.spectrum-ifa.com/spectrum-ifa-client-charter/

The above outline is provided for information purposes only and does not constitute advice or a recommendation from The Spectrum IFA Group to take any particular action to mitigate the effects of French taxes.

Preparing ‘THE’ folder

By Gareth Horsfall - Topics: Estate Planning, Inheritance Tax, Italy, Wills
This article is published on: 10th April 2018

10.04.18

Living in a foreign country is never easy, but have you thought how complicated it would be for your family if you die suddenly?

I am writing this E-zine after my weekly food trip to the Mercato Trionfale in Rome.  I believe it to be the largest indoor market in Rome.  It certainly has a massive choice of fruit, veg, meats, fish and much more.  For any foodies out there, it is well worth a visit.  However, my motivations for going this particular morning were not necessarily the food, but to go and have a natter with the people on the ‘bancarelle’.  As is the norm at markets you tend to have your favourite stalls and you get to know the people and whilst buying the groceries you can stop and put the world to rights, talk about the weather etc.   I love it because it is a break from the everyday routine and it provides me with that connection with people outside work.

So, when I got a call from a lawyer recently to tell me that one of my clients had died, (after a tragic and prolonged illness) I felt I had to go and have a dose of that life infusion once again.

This E-zine is never an easy one to write but I like to throw it out there once a year because I think its important.  Ensuring that your papers are in order in the event of your sudden death is incredibly important when living in another country.  It will provide you with peace of mind that your loved ones will not have too much difficulty in administering your estate, and your family  will be thankful that you did it for them.

The big problem is that as ‘stranieri’ we often have documents spread across multiple locations.  The office, a house in another country, with family members and in that old box that no-one dare look in.

The purpose of this Ezine is to outline a proven way of organizing your affairs to reduce stress in the event of your death.

So what is THE folder?

It is a single file (digital or physical) where you keep all of your important personal and financial information together. It allows easy access to these documents in the event that you’re no longer around to help. It is really important to have it in place where one family member takes the lead on the family finances (as I do in our household). That includes paying bills, managing accounts and storing documents.

Is it worth the effort?

Well, I think it is worth the effort. A time of loss can be stressful enough without having to try and piece together the deceased’s financial affairs. This can be a really difficult time for family members.

However, preparing THE folder is much more than avoiding stress; if you leave behind a administrative nightmare you could delay access to inheritors’ access to funds and potentially cost a small fortune in legal fees.

To give you an example of this, the UK Department of Work and Pensions estimate that there is currently more than £400 million sitting in unclaimed pensions pots in the UK.

Which is best…..physical or digital?

This comes down to personal preference. It can be done by either creating an electronic file that survivors can access in the event of death. This file can then be stored on your main computer, in the cloud or on an external hard drive. Alternatively you can use a physical folder to keep all of the important information together.

For what it’s worth, I decided to do both when building mine because my wife prefers paper and so is happier with hard copies of everything. I prefer digital. I have also shared the digital folder with some trusted family members.

Birth, marriage and divorce

  • Personal birth certificate
  • Marriage licence
  • Divorce papers
  • Birth certificate/adoption papers for minor children

Life insurance and retirement

  • Life insurance policy documents (including beneficiary nomination forms)
  • Details of any employer death in service benefits
  • Personal pension documents
  • Employer pension details
  • Annuity documents
  • Details of any entitlement to state pensions

Bank accounts

  • List of bank accounts with account numbers, login details, passwords etc
  • Details of any credit cards
  • Details of safe deposit boxes

Assets

  • Property, land and cemetery deeds
  • Timeshare ownership
  • Proof of loans made
  • Vehicle ownership documents
  • Stock certificates, brokerage accounts, investment platform details, online investment account details
  • Details of holdings of premium bonds, government bonds, investment bonds
  • Partnership and corporate operating/ownership agreements (including offshore companies)

Liabilities

  • Mortgage details
  • Proof of debts owed

Details of gifts

  • Dates and amounts/values (potentially helpful when calculating any inheritance tax liability)

Income sources

  • Make a listing of all your sources of income, especially ones that your family might not know too much about
  • Employer details
  • A copy of your most recent tax return or accounts

Monthly expenses

(so they can be maintained if necessary or cancelled if not. Essentially list the fixed costs which would need to continue after death)

  • Utilities
  • Insurance
  • Rent/mortgage
  • Loans
  • Subscriptions/memberships

Email and social media account details

  • Facebook
  • LinkedIn
  • Twitter,etc……..

Essentials

  • Will/testament + details of the legal firm that helped create it, if applicable
  • Instruction letter
  • Trust documents
  • Burial/cremation wishes

Contact details

  • List of names and contact numbers for: Financial adviser, doctor, lawyer/solicitor, accountant, insurance broker,

How often should ‘THE’ folder be reviewed?

Firstly, it is sensible to note the date that it was last reviewed so that anyone using it has an idea of how up-to-date the details are.

Going forward, reviewing the file on an annual basis should be sufficient.

Online passwords

If you are not comfortable keeping these in your folder, consider using a password management program. A password manager allows you to save all account usernames and passwords in one place. They are then protected using one master key. There a number of them available. I personally use LastPass – www.lastpass.com

This might be a step too far for you given the data breaches that seem to be happening almost daily, notably Facebook. I appreciate that and if you are not comfortable in using such an app then its important to have a physical record some where that can be accessed in the event of your death.

And finally…

Be sure to tell someone about it. There is little point going to the effort of creating such a folder if know one knows of its existence/where to find it…..

Wills for Expats in France

By Katriona Murray-Platon - Topics: France, Wills
This article is published on: 1st March 2018

01.03.18

If you have been reading the news recently you will know that a legal battle is about to start between the wife of the much beloved deceased French Rock Star Johnny Hallyday and his two children from his previous relationships, Laura Smet and David Hallyday. Johnny Hallyday’s children will reportedly contest the decision in his will to leave all his property and artistic rights to his widow Laeticia and their two adopted daughters. Whilst many of us do not have the same level of wealth as Johnny Hallyday, this case does highlight the issues around proper legal wills and more especially in situations where one has assets in more than one country.

Why is it important to have a will?
No one is legally required to have a will; however, most people want to be able to leave instructions on how their assets should be handled in the event of their death. A will is a legal document allowing you to communicate what you would like to happen to your personal possessions after you die. When you purchase a high value, physical asset, such as a house, it becomes even more important to be able to decide who would receive such assets should something happen to you.

If you are resident in France and do not have a valid will in place, then your property would be shared out according to the French rules of intestacy, granting automatic inheritance rights to any children you may have had, your surviving spouse, or to other relatives in the absence of a surviving spouse or child. If you do not have children and are not married or in a civil partnership, your assets would go to your nearest relative.

Do I need to re-do my English will now that I have bought a property in France?
If you have bought a property in France and not updated your UK will it would be advisable to speak to a UK cross border specialist who would be able to advise on whether your existing English will is suitable, or whether it may need replacing or updating in any way.

An English will – if properly drafted and executed in accordance with the UK Wills act of 1837 – would be recognised in France. France has signed the 1961 Hague Convention concerning wills and therefore recognises wills that are valid under UK law. Your French assets could therefore be dealt with together with your English assets under a carefully drafted English will, however this is not recommended in every case and you should seek proper legal advice to ensure that this would be the best solution in your personal circumstances.

When drafting a new will, it is important to inform your lawyer or notaire of the existence of any previous wills in any other country, to avoid revoking a will you have already made in the other country. They would be able to assist you in drafting a new will which takes into consideration any other wills specifically dealing with property in another country.

Do I need to do a French will?
This will depend on your individual circumstances and you should always seek professional advice from a properly qualified lawyer experienced in dealing with cross-border matters. “The inheritance and tax laws of the two countries are very different and each case needs to be examined individually before making a decision” says Matthew Cameron, Partner at Ashtons Legal, specialist in French law and cross-border legal issues. For example, whilst trusts are used very frequently in UK wills, they can cause all kinds of additional administrative and filing obligations in French law. A UK testator usually appoints executors to administer his/her estate after death and distribute the assets to the beneficiaries. In French law the notary is responsible for distributing the estate and assets can be held “jointly” or in “indivision” until the estate is wound up.
You should also note that under French law you cannot leave your estate to whomever you wish. The children have priority over the estate and the surviving spouse is only entitled to a fraction of the whole amount. So whilst you can, in a French will, give certain assets to friends and relatives, you cannot override French inheritance laws in the terms of your will.

I have heard that I can have English law apply to my French will is this true?
The European Succession Regulation 650/2012, also known as ‘Brussels IV’, which came into force on 17 August 2015, allows one law to apply to the whole of the deceased’s estate regardless of the location of the asset. International private law states that French law applies to immovable real estate assets situated in France and English law applies to real estate assets situated in England. Under this regulation the laws of the country in which a person is habitually resident at their death will apply to them unless they have made a declaration during their lifetime. This means that if you wish to elect for the law of your nationality to apply to the disposal of your estate, and for it to be recognised in France, it must be written into your will. However, the inverse cannot apply as the UK opted out of this EU regulation, so only English law can apply to an English estate. As Caroline Jeanson, notaire in Bordeaux who worked for over 12 years with English speaking clients in the Duras area, said “I have never yet, since the Regulation was enacted, advised a British national resident in France to opt for English law in their French will”. Whilst in theory you can choose which law will govern how you leave your assets, this will not avoid French inheritance tax. Under French tax law, if you leave your assets to someone who is not a direct blood relative, there can be substantial tax consequences. That beautiful chateau you own would probably have to be sold to settle the tax liability.

Do I need to do a will with a French notaire?
Strictly speaking you do not need to go to a French notary to write your will. You can do a hand written will called a “Testament Olographe” (holographic will) which is perfectly valid under French law. There is no legal requirement for it to be in the French language, it does not need to be witnessed nor does it have to be registered anywhere, however it is advisable to have it registered with the Central Wills Registry (Fichier Central des Dispositions de Dernières Volontés) which would enable any notary to access it. In any case it is best to seek the advice of a French notary before drafting a will. The first consultation is free and once the notary fully understands your specific situation they would be able to advise you on how best to draft the terms of your will.

Anyone who has ever lost someone will tell you that not only is it difficult to manage emotionally, but just at this very difficult time, there are a whole range of administrative matters that have to be dealt with. If the person did not make provisions in their will it is left to their friends or loved ones to deal with their assets, causing further upset and difficulty. To avoid this and to fully understand your personal situation it is best to seek professional advice from an independent financial adviser specialised in French tax matters, a UK solicitor specialised in French law or a French notary with several years’ experience advising English speaking clients.

For any questions or to make an appointment, please do not hesitate to contact us.

Successful estate planning in France – Having a will is just the beginning

By Sean Webb - Topics: Estate Planning, France, Succession Planning, Wills
This article is published on: 16th October 2017

16.10.17

When I left school, I knew more about Shakespeare than I did about personal finance. While we gain academic knowledge through education, and professional knowledge through work, there is no formal channel for learning the key life skill of money management. Most of us pick it up in the same way we acquire our wealth – very few have a strategy, even fewer have a plan.

The problem is that personal finance can be complex, sometimes very complex. Mistakes can be costly. This is especially so in France, even for the French themselves. How much more so then for those of us whose first language is not French. And one of the most complicated areas of personal finance in France is estate and inheritance planning.

Successful personal finance is not just about organising our financial affairs so that, while we work hard for money, our money works hard for us. It is also about putting in place arrangements to transmit that resultant wealth in the best conditions to the chosen ones we leave behind.

The passing of a loved one can be one of the most stressful moments of our lives, one where our families are at their most vulnerable. It is then that we need to rely on the robustness of the arrangements that we have already put in place. In spite of this, most of us do not have even a basic will.

The starting point of any successful estate planning starts with defining the ultimate goal. There are three aspects: –

  1. The capacity to transfer at death whatever assets remain to your preferred beneficiaries in proportions of your choosing
  2. In the most cost efficient and tax intelligent manner with the minimum amount of deductions
  3. While ideally retaining and maximising as much control as possible during your lifetime

The bad news is that in France ‘forced heirship’ succession law and inheritance tax rates of up to 60% can make this difficult to achieve. For families with complicated situations, such as step children, this can be especially problematic and UK arrangements will not necessarily function in France and may have unpredicted results. Moreover, finding a proactive English speaking French lawyer prepared to take the time to fully understand your situation and needs can be both challenging and expensive.

The good news is that there is also a complexity of legal and financial planning strategies that can be used when defining your plan to help you achieve your goals and get you nearer to the ideal goal, as defined above. Here are some examples: –

  1. A will with the possible addition of a ‘clause d’attribution intégrale au survivant’ or ‘clause de préciput’. Given Brexit, hand written wills in English should not be relied on in practice.
  2. A change of marriage regime, typically from ‘séperation de biens’ to ‘communauté universelle’ to protect the surviving spouse
  3. Brussels IV (EU Regulation 650/2012) allows you to avoid French succession law (not tax) by opting for the law of your country of nationality rather than of your residence
  4. Adoption of step children
  5. Gifts (‘donations’)
  6. A strategy of dismemberment (‘démembrement’) of real estate into life interest (‘nu-propriété) and usufruct (‘usufruit’). This can significantly reduce the inheritance tax bill, especially if done sooner rather than later via a will at time of death
  7. Use of assurance vie as tax optimisation wrapper for financial assets, ideal for transmitting inheritance to distant relatives, friends or third parties
  8. Careful editing of the beneficiary clause within an assurance vie policy
  9. A strategy of dismemberment can also be applied to certain assurance vie policies.
  10. Use of inheritance tax free allowances –the standard 100,000 EUR per child per parent and a second one via assurance vie adds another 152,500 EUR per beneficiary.

So make it easier on your lawyer and help him to help you. Given the complexity of both the issues and the solutions, ask for a free holistic review of your situation from your financial adviser so you can already begin to define your needs and goals, and have an idea of what strategies are possible.

Thus prepared, you will make your lawyer’s job easier and so less time consuming. As well as achieving peace of mind, you might even save yourself some fees!

Preparing your loved ones for life after your death

By John Hayward - Topics: Costa Blanca, Estate Planning, spain, Succession Planning, Wealth Tax, Wills
This article is published on: 9th September 2017

09.09.17

Having recently attended a funeral for a good friend of mine, I was reminded of the problems a death can create, aside from the actual act of dying. It appeared that, although he had organised a funeral plan, he had not made it clear where his Will was. Even if the Will was found, most Wills are written to distribute unspecified assets. An heir needs to know what assets there are before claiming anything. A draw full of files might appear organised but much of the content may be out of date or even completely irrelevant.

Who is the household´s financial controller?
In my experience, when dealing with couples, one party, normally the husband, deals with all things financial. This has resulted in many widows having a hard time with finances on the death of the husband. The thought of picking a phone up to contact their bank is daunting enough. Forgetting one of the six security questions is fatal. Logging into the online banking system is totally out of the question, even if they knew what the user ID and password were.

What can you do?
It is a really good idea to make a list, with company name and reference number, of all the bank accounts, insurance policies, investments (insurance bonds/unit trusts/shares), premium bonds, and anything else which would make life easier for those looking after your affairs on your demise. Here is a link which illustrates just how much information could be required. Are you confident someone will easily be able to put all of this together?

How can we help?
Many years ago, I was a “Man from the major UK insurance company”. I still tend to work on the home service principle. Meeting people in their homes has always been more attractive to me as paperwork will often be to hand. There is also the possibility of a cup of tea and a digestive. There have been times when I have found investments that people were unaware of and also helped to cull the collection of paperwork, creating more storage space, and possibly room for a new sofa (from the proceeds of the policy they didn´t know about). Obviously, I do not wish to major in house clearance but I am happy to help people organise their paperwork, review existing investments and pensions, and make life easier for those with the task of dealing with everything later. Hopefully much later.

Fun financial fact
According to several reports, in 2012, in the USA, a 1 cent coin cost 2.4 cents to make. By 2016, the cost had reduced to 1.5 cents. Making cents still does not seem to be making sense.

Documents and information needed when someone dies

By John Hayward - Topics: Wills
This article is published on: 20th August 2017

20.08.17

Here you can check the lists of all the documents and information needed after someone dies. They will help you notify the required people and organisations immediately after the death and assist you in the longer term probate process.

Documents and information to get as soon as possible

You will need to gather together the certain documents and information as quickly as possible after a death, so you can start funeral arrangements and register the death. You’ll need to know:

  • full name and surname of the deceased
  • date and place of death and usual address
  • marital status (single, married, widowed or divorced)
  • date and place of birth
  • occupation of the deceased (if the deceased was a wife or widow, the full names and occupation of her husband or deceased husband will be required)
  • if the deceased was a child, the full names and occupation of the father will be required, or where the parents are not married the full names and occupation of the mother will be required
  • maiden surname if the deceased was a woman who was married
  • the name and address of the deceased’s GP

You’ll also need to gather together the following documents:

  • medical certificate of the cause of death (signed by a doctor) for registering the death
  • birth certificate
  • marriage/civil partnership certificates
  • NHS number/NHS medical card
  • organ donor card

Documents needed to notify benefits/tax credits offices

  • correspondence confirming payment to the deceased of benefits , tax credits (HM Revenue & Customs) and/or State Pension (Department for Work and Pensions)
  • Child Benefit number (if relevant)

Documents relating to a partner or relative

  • proof of your relationship to the deceased (for example, marriage/civil partnership or birth certificate, child’s birth certificate naming both parents)
  • your social security card/National Insurance number if you will be claiming/changing benefits

Documents/information needed by the person sorting out the deceased’s affairs

The personal representative is the person formally responsible for sorting out the deceased person’s estate, paying any taxes and debts and distributing the estate. They will need the following documents (where relevant):

  • sealed copies of the grant of representation (probate/letters of administration)

Documents relating to the death

  • the will, if there is one
  • death certificate (often needed when requesting access to funds; it’s best to order at least two extra certified copies when registering the death)

Savings/investments related

  • bank and building society account statements
  • investment statements/share certificates
  • personal or company pension account statements

Insurance

  • life insurance documents (including mortgage cover)
  • general insurance policies (for example, home, car, travel, medical)

State pension/benefits

  • relevant correspondence or statements from Jobs & Benefits Offices (for benefits) and/or the Pension Service

Amounts owing by the deceased

  • mortgage statement
  • credit card statements
  • utility/ rates bills in the deceased’s name
  • rental agreements/statements (private or local authority)
  • other outstanding bills
  • leases, hire purchase agreements or similar (for example for equipment, car or furniture)
  • educational loan statements
  • any other loan statements

Amounts owed to the deceased

  • outstanding invoices if the deceased ran a business
  • written/verbal evidence of other money owed to the deceased

Property

  • property deeds or leases (main home and any other at home or abroad)
  • property keys

Other possessions

  • existing valuations of property such as jewellery, paintings and similar (though an up-to-date market valuation will be required)
  • any existing inventories of proper

Employment or self-employment

  • PAYE form P60 and latest payslips if the deceased was employed
  • recent tax returns and tax calculation statements (if relevant)

Business related

  • company registration documents, accounts, tax and VAT returns if they had a business

Other documents and information

The following documents and information will be required by the personal representative or close relative in order to contact relatives and friends or to return documents to relevant organisations:

  • address book/information listing close friends and relatives who will need to be informed
  • passport
  • vehicle registration documents if the deceased owned a car
  • driving licence/parking permits/travel cards/disabled parking badge
  • membership cards or documents/correspondence showing membership of clubs, associations, Trade Unions and similar

Contains public sector information licensed under the Open Government Licence v3.0

Who would inherit your Assets if you die without a will?

By Chris Burke - Topics: Barcelona, Estate Planning, Inheritance Tax, spain, Succession Planning, Wills
This article is published on: 26th May 2017

26.05.17

You might be surprised to know that 59%, that’s over half of UK adults, have not written a Will. And if you are over 55 there is a 36% chance you haven’t either. The main reason for this…….most people believe they are not wealthy enough to need a Will, or they are too young to make one. But what would happen to your assets if the worse did happen?

Is there a living husband, wife or civil partner?

If you are married, or have a civil partnership then it’s actually very straightforward and they would inherit your entire estate. But would you want that? And how about if by some awful miracle both of you departed this happy land, what would happen to your assets then? But let us put those to one side for now; imagine you have children, whom decide where they will be raised and who with? If you are living away from the UK this makes it even more complicated. If you don’t have a Will, you are leaving all of this to the authorities and not planning to protect yourself and your loved ones for the sake of a simple document.

Imagine you have a partner, but are not married and not in a civil partnership, would you be surprised to know they have no right to your assets? How would that affect them?
Let’s imagine, as more people these days are for various reasons not having children, that down the family line to Great Aunts/Uncles there is no one related to you. You might not be very happy to know that ‘The Crown? Inherits your assets, that is the Royal Family. In fact fewer people in the UK have Wills than a year ago.

Back in August 2015 the Wills laws changed in Europe, with the main different being you can CHOOSE which laws you wish your Will to follow. The choice is either your country of domicility (usually where you were born/hold a passport for) or the country you reside in now. If you are British most people choose the UK as the laws are easier, you have more control and less complex than those in Spain.

Find out here who would inherit your assets by clicking on this link:
www.gov.uk/inherits-someone-dies-without-will

To enquire about making a Will, don’t hesitate to get in touch and we can arrange for you to talk this through with a Will writer so you know:

  • The process involved
  • The costs
  • How it works
  • There is no charge for this peace of mind

Sources:
HMRC website
*unbiased.co.uk research conducted by Opinium Research between 19 to 23 August 2016, among 2,000 nationally representative UK adults aged 18+

French Tax Changes 2017

By Daphne Foulkes - Topics: Estate Planning, Exchange of Information, France, Income Tax, Inheritance Tax, Offshore Disclosures Facility, Tax, Uncategorised, wealth management, Wills
This article is published on: 3rd January 2017

03.01.17

During December, the following legislation has entered into force:

  • the Loi de Finances 2017
  • the Loi de Finances Rectificative 2016(I); and
  • the Loi de Financement de la Sécurité Sociale 2017

Shown below is a summary of our understanding of the principle changes.

INCOME TAX (Impôt sur le Revenu)

The barème scale, which is applicable to the taxation of income and gains from financial assets, has been revised as follows:

Income Tax Rate
Up to €9,710 0%
€9,711 to €26,818 14%
€26,819 to €71,898 30%
€71,899 to €152,260 41%
€152,261 and over 45%

The above will apply in 2017 in respect of the taxation of 2016 income and gains from financial assets.

Tax Reduction

A tax reduction of 20% will be granted when the income being accessed for taxation is less than €18,500 for single taxpayers, or €37,000 for a couple subject to joint taxation. These thresholds are increased by €3,700 for each additional dependant half-part in the household.

For single taxpayers with income between €18,500 and €20,500, and couples with income between €37,000 and €41,000 (plus in both cases any threshold increase for dependants), a tax reduction will still be granted, although this will be scaled down.

Prélèvement à la source de l’impôt sur le revenu

Currently, taxpayers complete an income tax declaration in May each year, in respect of income received in the previous year. From the beginning of the year, on-account payments of income tax are made, but pending the assessment of the declaration, these are based on the level of income received two years previously. In August, notifications of the actual income tax liability for the previous year are sent out and taxpayers are sent a bill for any underpayment or income tax for the previous year, or in rare situations, there may be a rebate due, typically in the situation where income has reduced, perhaps due to retirement or long-term disability.
Hence, at any time, there is a lag between the tax payments being made in respect of the income being assessed. Therefore, with the aim of closing this gap, France will move to a more modern system of collection of income tax, by taxing income as it arises. This reform will apply to the majority of regular income (including salaries, pensions, self-employed income and unfurnished property rental income), which will become subject to ‘on account’ withholding rates of tax from 1st January 2018.

Where the income is received from a third-party located in France, the organisation paying the income will deduct the tax at source, using the tax rate notified by the French tax authority. The advantage for the taxpayer is that the income tax deduction should more closely reflect the current income tax liability, based on the actual income being paid at the time of the tax deduction.

For income received from a source outside of France, the taxpayer will be required to make on-account monthly tax payments. The on-account amount payable will be set according to the taxpayer’s income in the previous year. However, if there is a strong variation in the current year’s income (compared to the previous year), it will be possible to request an interim adjustment to more accurately reflect the income actually being received, at the time of the payment of the tax.

Transitional payment arrangements will be put in place, as follows:

    • in 2017, taxpayers will pay tax on their 2016 income
    • in 2018, they will pay tax on their 2018 income, in 2019, they will pay tax on their 2019 income, and so on
    • in the second half of 2017, any third party in France making payments will be notified of the levy rate to be applied, which will be determined from 2016 revenues reported by the taxpayer in May 2017
    • from 1st January 2018, the levy rate will be applied to the income payments being made – and
    • the levy rate will then be amended in September each year to take into account any changes, following the income tax declaration made in the previous May

Taxpayers will still be required to make annual income tax declarations. However, what is clear from the transitional arrangements is that the income of 2017 that falls within the review will not actually be taxed; this is to avoid double taxation in 2018 (i.e. of the combination of 2017 and 2018 income). Therefore, to avoid any abuse of the reform, special provisions have been introduced so that taxpayers – who are able to do so – cannot artificially increase their income for the 2017 year.

Furthermore, exceptional non-recurring income received is excluded from the scope of the reform in 2017; this includes capital gains on financial assets and real estate, interest, dividends, stock options, bonus shares and pension taken in the form of cash (prestations de retraite servies sous forme de capital). Therefore, taxpayers will not be able to take advantage of the 2017 year to avoid paying tax on these types of income.

At the same time, the benefits of tax reductions and credits for 2017 will be maintained and allocated in full at the time of tax balancing in the summer of 2018, although for home care and child care, an advance partial tax credit is expected from February 2018. Charitable donations made in 2017, which are eligible for an income tax reduction, will also be taken into account in the balancing of August 2018.

WEALTH TAX (Impôt de Solidarité sur la Fortune)

There are no changes to wealth tax. Therefore, taxpayers with net assets of at least €1.3 million will continue to be subject to wealth tax on assets exceeding €800,000, as follows:

Fraction of Taxable Assets Tax Rate
Up to €800,000 0%
€800,001 to €1,300,000 0.50%
€1,300,001 to €2,570,000 0.70%
€2,570,001 to € 5,000,000 1%
€5,000,001 to €10,000,000 1.25%
Greater than €10,000,000 1.5%

 

CAPITAL GAINS TAX – Financial Assets (Plus Value Mobilières)

Gains arising from the disposal of financial assets continue to be added to other taxable income and then taxed in accordance with the progressive rates of tax outlined in the barème scale above.

However, the system of ‘taper relief’ still applies for the capital gains tax (but not for social contributions), in recognition of the period of ownership of any company shares, as follows:

  • 50% for a holding period from two years to less than eight years; and
  • 65% for a holding period of at least eight years

This relief also applies to gains arising from the sale of shares in ‘collective investments’, for example, investment funds and unit trusts, providing that at least 75% of the fund is invested in shares of companies.

In order to encourage investment in new small and medium enterprises, the higher allowances against capital gains for investments in such companies are also still provided, as follows:

  • 50% for a holding period from one year to less than four years;
  • 65% for a holding period from four years to less than eight years; and
  • 85% for a holding period of at least eight years

The above provisions apply in 2017 in respect of the taxation of gains made in 2016.

CAPITAL GAINS TAX – Property (Plus Value Immobilières)

Capital gains arising on the sale of a maison secondaire and on building land continue to be taxed at a fixed rate of 19%. However, a system of taper relief applies, as follows:

  • 6% for each year of ownership from the sixth year to the twenty-first year, inclusive; and;
  • 4% for the twenty-second year.

Thus, the gain will become free of capital gains tax after twenty-two years of ownership.

However, for social contributions (which remain at 15.5%), a different scale of taper relief applies, as follows:

  • 1.65% for each year of ownership from the sixth year to the twenty-first year, inclusive;
  • 1.6% for the twenty-second year; and
  • 9% for each year of ownership beyond the twenty-second year.

Thus, the gain will become free of social contributions after thirty years of ownership.

An additional tax continues to apply for a maison secondaire (but not on building land), when the gain exceeds €50,000, as follows:

Amount of Gain Tax Rate
€50,001 – €100,000 2%
€100,001 – €150,000 3%
€150,001 to €200,000 4%
€200,001 to €250,000 5%
€250,001 and over 6%

Where the gain is within the first €10,000 of the lower level of the band, a smoothing mechanism applies to reduce the amount of the tax liability.

The above taxes are also payable by non-residents selling a property or building land in France.

SOCIAL CHARGES (Prélèvements Sociaux)

As has been widely publicised, on 26th February 2015, the European Court of Justice (ECJ) ruled that France could not apply social charges to ‘income from capital’, if the taxpayer is insured by another Member State of the EU/EEA or Switzerland. Income from capital includes investment income on financial assets and property rental income, as well as capital gains on financial assets and real estate.

Fundamental to this decision was the fact that the ECJ determined that France’s social charges had sufficient links with the financing of the country’s social security system and benefits. EU Regulations generally provide that people can only be insured by one Member State. Therefore, if the person is insured by another Member State, they cannot also be insured by France and thus, should not have to pay French social charges on income from capital.

On 27th July 2015, the Conseil d’Etat, which is France’s highest court, accepted the ECJ ruling, which paved the way for those people affected to reclaim social charges that had been paid in 2013, 2014 and 2015. This applied to all residents of any EU/EEA State and Switzerland, who had paid social charges on French property rental income and capital gains, but excluded residents outside of these territories.

However, to circumvent the ECJ ruling, France amended its Social Security Code. In doing so, it removed the direct link of social charges to specific social security benefits that fall under EU Regulations. The changes took effect from 1st January 2016.

Hence, if you are resident in France, social charges are applied to your worldwide investment income and gains. The current rate is 15.5% and the charges are also payable by non-residents on French property rental income and capital gains.

Whilst the French Constitutional Council validated the changes in the French Social Security law, it remains highly questionable under EU law. One hopes, therefore, that this may be censored again by the ECJ, at some point.

EXCHANGE OF INFORMATION UNDER COMMON REPORTING STANDARD:

As of December 2016, there are now already over 1,300 bilateral exchange relationships activated, with respect to more than 50 jurisdictions. Many jurisdictions have already been collecting information throughout 2016, which will be shared with other jurisdictions by September 2017.

However, there are many more jurisdictions that are committed to the OECD’s Common Reporting Standard (CRS) and so it is anticipated that more information exchange agreements will be activated during 2017.

In the EU, the CRS has been brought into effect through the EU Directive on Administrative Cooperation in the Field of Taxation, which was adopted in December 2014. The scope of information exchange is very broad, including investment income (e.g. bank interest and dividends), pensions, property rental income, capital gains from financial assets and real estate, life assurance products, employment income, directors’ fees, as well as account balances of financial assets.

No-one is exempt and therefore, it is essential that when French income tax returns are completed, taxpayers declare all income and gains – even if this is taxable in another country by virtue of a Double Taxation Treaty with France.

It is also obligatory to declare the existence of bank accounts and life assurance policies held outside of France. The penalties for not doing so are €1,500 per account or contract, which increases to €10,000 if this is held in an ‘uncooperative State’ that has not concluded an agreement with France to provide administrative assistance to exchange tax information. Furthermore, if the total value of the accounts and contracts not declared is at least €50,000, then the fine is increased to 5% of the value of the account/contract as at 31st December, if this is greater than €1,500 (€10,000 if in an uncooperative State).

2nd January 2017

This outline is provided for information purposes only. It does not constitute advice or a recommendation from The Spectrum IFA Group to take any particular action to mitigate the effects of any potential changes in French tax legislation.

French Inheritance Planning

By Daphne Foulkes - Topics: Inheritance Tax, Le Tour de Finance, Succession Planning, Uncategorised, Wills
This article is published on: 9th September 2016

09.09.16

In May, I wrote about tax-efficient savings & investments in France, including Assurance Vie (AV), which is the most popular type of investment in France for medium to long-term savings. If you did not see the article, you can find it at www.spectrum-ifa.com/tax-efficient-savings-investments-france/

I had intended to return to discuss the benefits of AV for French inheritance planning, in the following month. But then we had the result of the Brexit vote and that caught my attention just a little more!

So now I am getting back to basics of what works for successful French inheritance planning for financial assets – regardless of whether the UK is in or out of the EU – and regardless of nationality. Without a doubt, this is the AV, as this is an excellent planning tool for protecting the survivor, providing you with freedom of choice about who you can leave your financial assets to, as well as mitigating the potential inheritance taxes for your beneficiaries.

In France, there are strict rules on succession and children are ‘protected heirs’, each being entitled to inherit a proportion of their parents’ estates. For example, if you have one child, the proportion is half; two children, one-third each; and if you have three or more children, three-quarters of your estate must be divided equally between them.

However, for a quirk of historical reasoning, the death benefits paid from an AV fall outside of your standard estate. Therefore, you can leave the proceeds of your AV to whoever you wish and so get around the French ‘forced’ succession rules. I know that there will be many out there who are saying that you can do this anyway now, as a result of the EU Succession Regulations. Well that’s true, but maybe it’s not quite as straightforward as one might think – or at least hoped!

The problem is that even though the EU Regulations have been in place for more than a year now, these have not been widely tested. Notaires and cross-border legal specialists are still trying to get to grips with how these Regulations actually work in practice. So I, like many other professionals, still hold the view that if there is a tried and tested ‘French way’ to achieve your objectives, then this should be used. Early articles that I wrote on this subject can be found at www.spectrum-ifa.com/the-eu-succession-regulations/

The EU Succession Regulations do not change the potential French inheritances taxes that are payable, but an AV does. Whilst there are no French inheritance taxes between spouses and partners who have entered into a legal civil partnership (known as a PACS, in France), for other beneficiaries, the tax rate varies according to their relationship to you. For example, step-children (and other non-blood beneficiaries) are taxed at a punitive 60%!

For amounts invested in an AV before age 70, each beneficiary (whatever their relationship to you) is entitled to a tax-free allowance of €152,500. Taxation is limited to 20% on amounts paid above the allowance up to €700,000, and at 31.25% for amounts exceeding €700,000 per beneficiary). There is still no tax between spouses and PACSd partners, whatever amount is transmitted.

There is no limit to the number of beneficiaries that you can name. Hence, whatever your family situation, it is possible to pass on your capital to whoever you like, without them suffering excessive rates of French inheritance tax. Thus, the survivor can be fully protected and then the capital can subsequently pass to your other beneficiaries, following the death of the survivor.

For amounts invested after age 70, the inheritance allowance for all your beneficiaries combined is reduced to €30,500 (plus the investment return on the total amount invested). In effect, therefore, it is only the amount invested that exceeds €30,500 that would be taxed at standard French inheritance tax rates.

Sadly, social contributions are now charged on any gain in the policy paid out as a death benefit. Even so, when the above inheritance planning advantages are taken into account together with the personal tax savings, this makes the AV a very attractive proposition.

Inheritance planning is a highly specialised and complicated subject. Everyone’s family situation and level of wealth is different and it is very important to seek professional advice, so that the best course of action for you can be established.

The benefits of AV and tax-efficiency is a subject that we cover in our popular financial seminars across France – “Le Tour de Finance – Bringing Experts to Expats”. Overall, our industry experts will be presenting updates and outlooks on a broad range of subjects, including:

  • Financial Markets
  • Assurance Vie
  • Pensions/QROPS
  • French Tax Issues
  • Currency Exchange

The date for the local seminar is Friday, 7th October 2016 at the Domaine Gayda, 11300 Brugairolles. Places are limited and must be reserved, in advance. This venue is always very popular and with less than a month to go, the event is likely to soon be fully booked. Therefore, you should contact us as soon as possible if you would like to come to the seminar. I will be at the event with our other advisers in this area, Rob, Derek and Sue.

In practice, financial advice is needed more than ever in uncertain times. Doing nothing can often be an expensive mistake. Hence, if you are not able to attend the seminar and would anyway like to have a confidential discussion with one of our financial advisers, you can contact us by e-mail at limoux@spectrum-ifa.com or by telephone on 04 68 31 14 10 to make an appointment. Alternatively, if you are in Limoux, call by our office at 2 Place du Général Leclerc, 11300 Limoux, to see if an advisor is available immediately for an initial discussion.

The above outline is provided for information purposes only and does not constitute advice or a recommendation from The Spectrum IFA Group to take any particular action on the subject of the investment of financial assets or on the mitigation of taxes.

The Spectrum IFA Group advisers do not charge any fees directly to clients for their time or for advice given, as can be seen from our Client Charter.

Wills in Switzerland

By Anton Taylor - Topics: Estate Planning, Switzerland, Tax, Uncategorised, Wills
This article is published on: 27th July 2016

27.07.16

A large number of expats try to put their affairs in order prior to leaving their home country and this often includes updating their wills. However, the updating of wills in your home country may not always be enough to ensure that your wishes are carried out, or that you minimise your exposure to Inheritance tax. In some cases, without a will in the country of residence, your children could be made wards of the state.

In Switzerland, as a general rule, the Estate of anyone residing in Switzerland is governed by Swiss material law, especially by the relevant provisions of the Swiss Civil Code, which definitely apply in the absence of a Swiss Will, notwithstanding the deceased’s citizenship, personal status or religion.

Swiss law, which was influenced by the Napoleonic Code, provides for various solutions, either mandatory or optional, and includes the so-called rules of “forced heirship” according to which some heirs (the spouse, the children and, in some cases, the parents of the deceased) are in any event entitled to a minimum portion of the Estate (similar rules apply in most countries on the continent and in Scotland).

Foreign residents in Switzerland may, by making a Will, direct that their Estate be governed by the law of their country of origin and, thus, avoid all or some of the rules set by Swiss law.

This choice of law does not affect the jurisdiction of the Swiss authorities and, depending on the deceased’s Canton of residence, inheritance tax must still be paid in Switzerland (taking into consideration the deceased’s Estate on a worldwide basis).

As regards American citizens, it may be wise to specify the law of the relevant US State (with which they have some connections, e.g. California), while British citizens should refer to “English law” (or “Scottish law” for the Scots) rather than UK or British law since it does not exist as such.

A Swiss Will must have the form prescribed by Swiss law. As a rule, it must either be entirely handwritten, dated and signed by the “Testator”, or made before a Swiss Notary Public (where the Will is actually drafted by the Notary and signed by the Testator in the presence of two witnesses who are often the Notary’s assistants).

Typed Wills or so-called “joint” Wills (one single Will made by two people) are prohibited and void.

Handwritten Wills may be drafted in any language, while Wills made before a Notary Public are usually in the local official language (i.e. in French in the French-speaking area of Switzerland, such as Geneva or Vaud).

Usually, Wills made with the assistance of a Notary Public are kept by them and sent to the local Court or authority upon the testators’ death. When Wills are made privately, it is wise to leave them in some place where they will be found easily, but they can be lost or destroyed. It goes without saying that any Will may, at the Testator’s discretion, be changed, amended, replaced or cancelled at any time by their authors and mere photocopies are not effective.

Under Swiss law, when there is no Will, the Estate is usually handled by the heirs (who must act jointly).

An Executor (or more than one) may however be appointed by Will and, upon the Testator’s death, will be required by the competent local Court (the Judge of the Peace in Geneva and Vaud) to accept this mission. The Will may include some specific instructions to the Executor who is generally entitled to deal with the Estate without any restriction.

The appointment of an Executor in a Will is recommended when some assets are held abroad (especially in the US, in the UK or in other common law jurisdictions), when some of the heirs are under 18 years of age or when the situation may prove complex for some other reasons.

Where no Executor was appointed, the local Court may, under some circumstances, appoint an Administrator to take care of the Estate and to protect the heirs’ interests, especially if they are not all known.

Anyone finding a deceased’s Will in Switzerland must send it to the local authorities. Probate proceedings include the notification of a copy of the Will to all the heirs and beneficiaries and, depending on the circumstances, to any relatives possibly entitled to a portion the Estate.

Usually, when the deceased was a foreign national, Swiss Courts require that the heirs submit a formal statement to be issued by a Notary Public in accordance with information that must be given by two witnesses who have no interest in the Estate and who must confirm the deceased’s family status, with a list of all relatives who may be entitled to the Estate. In the event of any doubt or if no one is able to provide the requested information, the Court may order that a formal notice be published in the official gazette, allowing any potential heir to challenge the Will within 1 year.

In some cases, the heirs also have to submit a legal opinion confirming the solution resulting from the application of some foreign rules (if selected in the Will) that are sometimes regarded as rather “exotic”.

Once the situation is clarified (and, where applicable, after a fiscal inventory is filed and inheritance tax paid), the Court issues a Certificate of Inheritance naming the heirs and allowing them to fully access the Estate assets and arrange for these to be distributed amongst them.

In Summary:

  • Non-Swiss should ask for their Estate to be governed by the law of their home country and state the country (i.e. will therefore avoid Napoleonic Code).
  • If it is not made before a Notary Public, the Will must be handwritten and married couple must write a Will each (so-called “joint-wills” are invalid in Switzerland).
  • A handwritten Will does not have to be witnessed and it should be kept in a safe place.
  • The appointment of an Executor (or more than one) should be considered.
  • It is helpful to attach a list of worldwide assets such as the name of the bank, branch and account number in which accounts are held, details of life policies or any other assets, as well as the contact details of people who could inform the heirs (such as Attorney, Financial Advisor or Accountant).

For more detailed advice or information on wills and estate planning for expats you should come to the Spectrum Seminar at Chateau de Nyon on 29th September. Further details will be sent closer to the event.