Overseas Chambers of Peter Harris

Overseas Chambers
c/o Addington Chambers
160, Fleet Street,
London EC4A 2DQ,
United Kingdom

Fellow of the European Law Institute Vienna
Barrister at Law - Regulated by
the Bar Standards Board
Bar Mututal insurance: 8015/009

55 Update on HMRC's attitude to the IHT treatment of French usufruits

June 16th 2021

Those who visit this website regularly will have noticed that this topic appears frequently in the News section.

The advice that I have been able to give solicitors and other professionals preparing IHT 400 forms and annexes for those estates in some way concerned with the IHT treatment has frequently led to expressions of surprise that the HMRC's published position is so far from the legal position and the actual wording of section 43(2) ITA 1984 when read carefully and in full possession of the terms used in the last paragraph of the subsection: the terms "regulated by" and "governed by" being but two examples.

Action taken or perhaps better inaction deployed has led to considerable "savings" in IHT on both usufruits created on the death of the owner of a French immovable to the surviving spouse either by will or under Napoleonic Code entitlement and also for those remaining after a gift of the nue-propriété by parents seeking to transfer part of their immovable wealth to their children under French law.

I use the term "savings" despite the fact that there is no reason to treat such a dismembrment as a rather more expensive "settlement" whether pre-2006 or thereafter. The correct term would be avoiding an overcharge following incorrect and tangibly negligent advice from lawyers who appear not to know of what a settlement as such consists, and are content to follow HMRC's erroneous analysis in the IHT Manuals, from which HMRC is gradually retreating.

The point is that there is little point in not knowing where you stand in relation to one of these simple property law entitlements. If acting in ignorance, the estate of a deceased propriétaire can find itself entangled, entirely unnecessarily,  in HMRC 's uneducated trammels who conveniently forget, for example, that at the very first instance a written disposition is required to create a settlement.

Together with a more senior member of Addington Chambers and an ex Upper Tax Tribunal Judge, Adrian Shipwright, we are to publish an article in a professional journal on this subject, which will lay the foundation and the basis for a more public inquisition into HMRC's views and errors.

I would suggest that time waits for no man's estate, and that advice should be taken sooner rather than later so as to avoid unduly enriching Her Majesty' Treasury with money to which it is not entitled under the statute, and which HMRC has yet to prove any satisfactory case to such an "outcome".

What is worrying is that some City law firms appear not to have taken up these points, and are still advising clients not to adopt such property arrangements, which are in fact perfectly safe, if the law is read and what is more applied correctly. Fortunately for those seeking advice, most of the partners responsible for those historic errors appear to be retiring.