Planning Ahead – Retiring To France

December 1, 2007

One of the most unfortunate outcomes of retiring to France for British couples is the unforeseen and often sudden ill health or death of a much-loved partner.

This is devastating enough wherever you are, and can be more so if the correct legal preparations have not been set in place. You cannot see into the future but you can learn from other people’s experiences, and by exercising foresight, a lot of extra anguish and heartache can be saved.

The following case studies are based on real life situations but the names and some of the circumstances have been changed to protect the identities of the people concerned. However, the consequences are fact.

Case Study 1 – Civil Partnerships

Elizabeth and Susan were in a long-term relationship for over thirty years and had entered into a UK civil partnership, a legal relationship giving them similar tax rights and advantages as married couples in the UK. They liked to drive over to France and spend time in their house in the country which had been paid for solely by Elizabeth, but was owned under a clause tontine, a joint tenancy clause that in France allows the property to pass directly into the hands of the survivor on the first death. As they were nearing retirement age, they planned to move to France for a quiet and enjoyable life. Unfortunately, before this happened, Susan died unexpectedly.

The tontine clause meant that French succession law did not apply to the property and that on Susan’s death, the legal ownership passed wholly into Elizabeth’s hands. The tontine clause was necessary to protect the survivor, because France only looks at the legal position, and does not recognise UK civil partnerships, whereas the UK law recognises the French equivalent, the Pacte Civil de Solidarité (PACS). Without the tontine, the property would have passed to Susan’s relatives under French succession law, or, failing that, according to her French will, if she had one.

As France only looks at the legal position and will not consider how the property was paid for, for French succession tax purposes this was a transfer of value, and thus Elizabeth has to pay French succession tax on the share of the property inherited from Susan. Under French law the two had no legal relationship and are ‘strangers’ for tax purposes, and thus Elizabeth faces a 60 per cent succession tax charge on Susan’s share of the property to be paid within six months. It may be possible to pay the tax in installments at a maximum of six monthly intervals, over a period of up to five years, but interest will be due on the tax owed.

Elizabeth is effectively paying tax on a half-share of the house she acquired with her own money, and may have to sell the house to pay the liability. As Susan was not resident in France at the time of her death, only her share of the French property is taxable in France. However, if she had died as a French tax resident, her worldwide estate (with the exception of any UK property) would have passed under French succession law. The tontine clause and civil partnership would have ensured that any real estate would pass to Elizabeth, but the remainder of her assets would pass to her nearest relatives under French succession law, or, failing that, according to her will. French succession tax would have been payable on her worldwide assets, including any UK property.

As Susan’s share of the French property and all of her UK assets have passed under her UK will to Elizabeth, with whom she had a UK civil partnership, no UK inheritance tax is due.

Even if any UK inheritance tax had been due, under the UK/France Double Tax Treaty, any French tax payable can be offset against any UK tax liability arising on the same assets.

Had they actually moved to France, they could have entered into a French PACS, which, whilst not as good for tax purposes as marriage in France, is significantly more tax efficient than being treated as strangers. However, they would have first needed to know that a UK civil partnership isn’t valid in France, and they could have found this out by taking advice.

Case Study 2 – Power of Attorney

Alan and Penny were looking forward to a long and happy retirement in France. Sadly, Alan started to show signs of early Alzheimer’s and when the disease was officially confirmed she managed to procure an Enduring Power of Attorney (EPA) in the UK. Unfortunately, the EPA is not valid in France and Penny was worried about how she was going to sign documents on Alan’s behalf in France when he could no longer do so.

Alan had periods of lucidity when he clearly understood what was happening but time was running out and neither he nor Penny (now French residents) knew when Alan would no longer be capable of making decisions or indeed, if he would pass away sooner rather than later.

As residents of France, it is still possible for Alan to sign documents or make a will if Penny obtains a doctor’s certificate indicating that he has sufficient mental capacity to understand what he is signing, or more so, if a doctor attends the signing. Those who suffer from Alzheimer’s or other forms of mental incapacity do often have periods when they are in command of their faculties.

Penny can apply for a curatelle or tutelle, whereby she becomes Alan’s curateur or tuteur in relation to French assets and interests under a court order made by a Juge des Tutelles.

In relation to French assets, a notaire will want to see a court document appointing Penny as curateur or tuteur.

If they have not already done so Penny and Alan could enter into a community marriage contract (CMC), under which any assets held under the contract would pass as of right to Penny on Alan’s death, regardless of children’s rights. Such a contract can cover just a French property, or can be extended to cover all assets of the marriage.

Bill Blevins is Managing Director of Blevins Franks International, one of the largest independent financial advisers, which specialises in advising retired expatriates in southern Europe

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