UK INHERITANCE TAX TREATMENT OF A FRENCH USUFRUIT

Humphries Kirk recently achieved an excellent outcome for one its clients in respect of the UK inheritance tax treatment of a French usufruct. An usufruct is a right to use a property and enjoy the revenues from it. It is similar to what is termed a “life interest” in England & Wales. With Counsel’s advice Humphries Kirk have successfully argued that no inheritance tax is payable in the UK in respect of the usufruct a deceased had created over her French property.

Mrs G was born in France and married her English domiciled husband in 1947, she lived between France and England. In 2000 Mrs G gifted her half share of her French property to her three children in equal shares and retained an usufruct which on her death was automatically extinguished. At the time of her death Mrs G was resident in England. Under French Law upon Mrs G’s death no inheritance tax was payable as no interest in the property was passing as her interest had already passed to her children in 2000.

The approach and advice from specialist Counsel in London, including those regarded as pre-eminent in their fields, indicated that inheritance tax would be payable and an additional charge based on the initial disposal when the usufruct was created would be caused. However, Humphries Kirk introduced to the executors an English barrister of French nationality based in the Channel Islands. He advised that a usufruct would not be caught by the inheritance tax legislation if it was simple in nature and also that following the death of Mrs G the property share passed to the beneficiaries and was extinguished. If a proprietary interest as opposed to a settlement was created then the gap in the legislation would enable the executors to make a zero return of the interest Mrs G had in the property at the date of her death. This was the advice Humphries Kirk and the executors of Mrs G’s estate followed.

After gathering all the information and providing evidence to HMRC including Counsel’s opinion HMRC have now accepted that no inheritance tax is payable in connection with the French properties.

Humphries Kirk view this outcome as significant with the conclusion demonstrating that lead Counsel in London are advising clients erroneously on this matter. Humphries Kirk would therefore urge anyone with French property to seek advice following this decision. Humphries Kirk can provide advice and introductions to Counsel who have specialist knowledge of this complex area of law. In this case upwards of £700,000 of inheritance tax was saved.