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
Channel. As every well trained Engmish lawyer knows -if not why
not- you cannot have a settlement without a trust, confirmed by
Lord Wilberforce in Roome and Deeme v Edwards, as otherwise here is
no means of enforcing succession to the asset, inuder English
law since the days of a use.
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.
Whilst a simple devolution under French law might assist, using
the domicile/renvoi allocation in article 34 of
Regulation EU n°650/2012 may be available - again you need advice
on what a devolution is under English law, 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 fro IHT purposes. 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
Viscount Dilhorne in the case of Pearson so as to "establish" that
any transfer of a legal interest for life 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. Teaching a Civil servant to
read a law that states that their Manual is wrong can be a time
consuming and an expensicve process.
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 it woudl be
unfair to expect a French Notary or avocat to be able to advise on
British matters, even if they say they have English experience,
university education or qualifications. Experience is needed to
make the two laws function together without inflammatory fiscal
sparks. Their merely speaking the language does not guarantee their
full knowledges of the concepts and the statutory fiction
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.