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Answered by Michael Englefield
This is a complicated question. If UK inheritance tax (IHT) is due on overseas properties depends on where you are ‘domiciled’.
Do UK non-domiciles have to pay IHT?
If you are now a true ‘non-domicile’ (i.e. you have made our permanent home or domicile outside the UK), then IHT is only levied on assets you hold in the UK. If you own your home in the South of France or have foreign currency in a French bank account, for example, these assets will be exempt from UK IHT in this case (but may be subject to local taxes, so it is best to check with an expert in France).
Do UK domiciles have to pay inheritance tax on overseas property?
If you’re still classed as domiciled in the UK, however, then you’re required to pay IHT on all assets you own worldwide, including those in France. In this situation, be wary of France’s ‘forced heirship’ rules. France and other European countries have laws which stipulate how your estate should be divided on your death. It’s mandatory to leave a fixed proportion of your estate to ‘protected heirs’ (usually your children).
This would mean that you’re unable to leave your entire estate to your spouse in your will under French law, potentially preventing you from taking full advantage of the UK’s transferrable nil-rate band for UK IHT purposes.
Birth rights or adopted rights?
Fortunately, new legislation introduced last summer now allows EU citizens with more than one nationality or those resident in an EU country other than where they were born to choose which country’s laws they want to govern their inheritance: their adoptive country or their birth country.
However, the default position is that the legislation in the country where someone is a habitual resident when they die governs the inheritance unless they specifically opt for it to be dealt with under the law of their birth country. So there’s still a risk that if you die without undertaking sufficient estate planning, French law will kick in and you may run into trouble for UK IHT, if you’re still domiciled in the UK and required to pay it.
This is a complicated area fraught with difficulties, and it’s best to get expert advice on both sides of the Channel to ensure a smooth inheritance process for your heirs.
Frequently Asked Inheritance Tax Advice Questions
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