The time of year has come round again when clients either
purchase properties in France or review their properties there.
Most purchasers believe that the notary involved in the purchase
will be able to give them some form of succession planning in
France, which, if limited to France, is correct, and inexpensive
Unfortunately the notary's abillities in British Inheritance Tax
planning will be limited to some half informed professional
commentaries on whether a usufruit dismemberment is a deemed
settlement under the s.43 ITA 1984 statutory fiction or not,
giving rise to such confiscatory measures as a 10 year inheritance
tax charge and a missmatch of tax treatment on either side of the
The recently developed dark media art of publishing
half-researched information in the form of questioning in order to
create doubt where the law is straightforward has also taken over
the internet and social media. Some things are legal fact and in
that context are unquestionable.
Amongst other mechanisms a dismemberment or carve out of
legal rights between generations is possible but the wording needs
to be very carefully drafted in French and allocate property rights
on purchase. What is more, there may need to be consultation and
monetary contributions by both parties.
It is also possible to manage this by a testamentary
disposition, but again, the Notary will need to have British advice
on how to draft the dismemberment without creating what HMRC willl
then attempt in deliberate ignorance to treat as a settlement.
The recent September 2015 Trusts and Estates Newsletter "
IHT treatment of usufructs" and its update are a complete
smokescreen, as HMRC on each occasion in which an opinion to the
effect that a usufruit is a property right was produced has lead to
a noli contendare from HMRC.
The point that is frequently missed is that there is no trust
involved in the creation of a dismemberment under French law. For
capital gains purposes a usufructuary dismemberment cannot
therefore be a settlement, as under English law there can be no
settlement without a trust. It is only the statutory fiction
contained in s 43 ITA 1984 which can create any anomaly. Taking the
trouble to read the minutes of the Standing Committee A minutes in
Hansard of the initial Finance Act 1978 Schedule V definition
and the subsequent amendments required in Finance n° 2 Act 1980 is
more than instructive as to the dilletante attitude prevailing at
the time towards the Scottish Proper Liferent, which has
since become ingrained, not by any statutory definition, but by
HMRC's subsequent attempts to overwrite the statutory definition
into something which it is not.
What is worse is that HMRC are quite capable of missquoting
Vicount Dilhorne in the case of Pearson so as to "establish" that
any transfer of and intereste on death is a trust matter, but
forget that their "authority" for this, Pearson, was only concerned
with the Pilkington Trusts, and is therefore not authority for
treating a non-trust mechanism such as a usufructuary dismemberment
as a form of settlement.
One of those cases involved a nue-propriétaire who was both a
French avocat and a Barrister: there was no wool left there for
HMRC to pull over that taxpayers eyes. It was not a question of
costs or relative loss to the Exchecquer at all, unless other
lawyers have tried the argument and failed to present it correctly.
The degree of deliberate "ignorance" displayed can be summed up in
the phrase 'where the estate included a usufruit". By definition no
usufruit'pur et simple' can be included in any estate as it
extinguishes on death under the relevant article in the code
The Notary normally will not charge for succession advice, and
it appears free: it is only a part of the conveyance to them, as
opposed to separate dedicated tax advice. It is of no use
whatsoever reying upon French orientated Blogs run by estate
agencies attempting to give professional advice for free. If it is
worth leaving to your spouse or partner or children, it is
worth paying for it to pass correctly.
Rather than miss opportunities for legitimate succession
planning, please contact Peter Harris for advice.
Each case needs handling on its own merits but please do not
expect a French Notary or avocat to be able to advise on British
matters, even if they say they have English experience or
qualiifications. Experience is needed to make the two laws function
together without fiscal sparks! Their merely speaking the languiage
does not guarantee their full knowledges of the concepts
I will be very happy to assist those who have already purchased
and those who are thinking of purchasing French, Italian and
Spanish properties in this manner and in giving advice on how to
draft and to go about using this elementary but effective
mechanism. I work with the notary to acheive the correct
The EU Succession Regulaton 650/2012 has indirectly reinforced
the validity of these arrangements, by excluding them fmr the
defintion of a transfer by way of succession, and has therefore not
put them into question.