Overseas Chambers of Peter Harris

Is this an anniversary that we would wish to celebrate? The 10th anniversary of the French tax declaration 2181 régime for trusts: an unruly and ill mannered adolescent

February 8th 2022

It is not a birthday to forget, certainly with a 20.000€ penalty for each default in declaration.

This concerns British trustees, especially with the constant and continuing movements of individual beneficiaries and settlors between the UK, the Crown Peculiars (if you insist Dependencies) and France.

Nothing may seem more normal (in England) or ethical than setting up a will trust with your family home in it with income to your wife for life and capital to your children and step-children contingent on her decease, but what happens if one of your children or in a second marriage your step-children decides to move to France, without being aware of it or making you or the trustees of your will aware of it when you have passed?

The matter is bad enough for a professional trustee, let alone a widow or widower.

The French do not see trusts in that favourable taxable light at all. For them, despite their origins in Norman land law in England, they consider these to be engines of devillry and fiscal evasion. It is simple, the pure English trust of land is no such thing. The French do not grasp that and neither did the individual who drafted the legislation consider it high on the list of his priorities, if he was even conscious of it. He must have been aware of an issue because the -  was not a trust.  

The problem is that once you have passed, and probate is taken out, there is a trust in place and any of its beneficiaries resident in France has to be declared to the French administration by the trustees not just once with the full value of the trust assets declared but also the identities and addresses of each beneficiary, but annually for so long that the French resident remains tax resident in France.

The details are carried to a French register which is open to public inspection (GDPR notwithstanding) and are then also automatically transferable to other tax administrations elsewhere.

Unlike your children, this unruly teenager doesn't improve with age.

The moment you consult a French lawyer or tax adviser about such a trust, he/she is required under the EU money laundering directive to notify the French tax administration, which is a very good reason for consulting an experienced and reputed French tax professional outside France such as myself about what can be done.

I do not have to make any report in Jersey on simply being instructed. Neither do I have to notify HMRC under the UK equivalent legislation, as my chambers, aptly named Overseas Chambers, is in Jersey, not within the United Kingdom.

For the full "birthday cake" lit up for this recent unruly teenager, see my recent article at our resources page: French Tax and Reporting Obligations Relating to Trusts.

Please do not hestitate to contact me for advice on how to blow its cakist candles out legitimately