France-UK estate tax: who taxes what, and why gifts remain outside the treaty

The allocation rules, article by article

• Scope (Article 1) and double taxation condition (Article 3). The convention covers French succession duties and UK estate duty, together with any similar tax introduced later, which covers inheritance tax. Its situs rules apply only to an asset taxable under the law of both States, or that would be taxable in the other but for a special exemption.
• Immovable property (Article 4, a). Situated where it lies; whether an asset or right is immovable is decided by the law of the place where the property is located.
• Tangible movables (Article 4, b). Situated where they are at the date of death, banknotes included; ships and aircraft at their place of registration.
• Debts, bonds and insurance (Article 4, c, d and f). Situated at the domicile of the deceased, including negotiable company bonds and government securities, wherever issued or deposited. The estate of a person domiciled in the UK therefore bears no French duty on bonds of French companies or French government securities.
• Shares in companies (Article 4, e). Situated where the company was incorporated, including shares held by a nominee. Shares in a company incorporated in France are taxable in France even if deposited in London.
• Partnerships and French civil companies (Article 4, g). Interests in a French general or limited partnership or civil company are situated where the business is principally carried on; for an SCI, where the property held under its corporate purpose is located. Units in an SCI owning a Paris flat are therefore taxable in France.
• Goodwill, intellectual property and other rights (Article 4, h, j, k, l and m). Business or professional goodwill is situated where the business is carried on; patents, trademarks and copyright, tort claims and judgment debts at the domicile of the deceased; any other right where the law of the State in which the deceased was not domiciled places it.
• Taxation by the State of domicile (Article 5). For a deceased domiciled in France, the UK does not tax assets that are neither situated in Great Britain nor passing under a disposition or devolution governed by the law of any part of Great Britain. For a deceased domiciled in the UK, France taxes only assets situated in France, subject to the Article 3 condition for assets the UK does not tax. The State taxing without being the State of domicile grants the exemptions and allowances it would apply if the deceased had been domiciled there.
• Tax credit and deadline (Articles 6 and 7). The State of domicile credits the tax paid in the other State on an asset situated there, up to its own tax on that asset. The claim must be made within five years of death, or of the later event that made the tax payable; repayment carries no interest. For the estate of a person domiciled in France, heirs claim credit for UK tax on French form no. 2740; for a person domiciled in Great Britain, credit for French duties is claimed on a UK form.

Domicile before the French courts: two decisions

We have not found a published decision applying the 1963 convention itself. The domicile of the deceased, the starting point of the whole analysis, is resolved, in case of dual domicile, by the cascade of Article 2, paragraph 3, b, of the 1963 convention (permanent home, centre of vital interests, habitual abode, nationality), which is also found in the 1968 income tax treaty: two decisions rendered under that treaty show the method, without deciding an estate dispute. The decisions are in French.

• Two homes, one centre of vital interests. A couple renting a flat in London and occupying a flat in Paris have a permanent home in each State; their centre of vital interests is in France, where their assets, the wife's occupation and most of their income are located, even though the husband chairs a company in London (CE, 11 December 2009, no. 300733).
• Resident, but not domiciled. A court that holds that a taxpayer was not UK resident without discussing the Inland Revenue certificate describing them as tax resident but not domiciled distorts the evidence in the file (CE, 7 May 2014, no. 360845).

A Paris flat in the estate of a London resident

• The facts. A deceased domiciled in the UK for the convention, a long-term UK resident liable to inheritance tax on worldwide assets, leaves two children, a Paris flat held directly and valued at €1,000,000, a securities portfolio in London and bonds issued by French companies.
• What France taxes. The flat only. The bonds are situated at the domicile of the deceased, the London portfolio is not situated in France, and these assets, taxed in the UK, do not count for the rate either, even if the children live in France.
• The calculation. Each child receives €500,000. The €100,000 allowance for children under Article 779 of the French tax code applies, the convention requiring the allowances due to a deceased domiciled in France (Article 5, paragraph 3), leaving a taxable share of €400,000 and, under the scale for direct descendants, duties of €78,194.35 per child, €156,388.70 in total.
• On the UK side. The UK taxes the estate under its law, flat included, and credits the French tax paid on the flat, up to the inheritance tax attributable to that asset (Article 6).
• The SCI variant. If the flat is held through an SCI, the units are situated where the property is and the result is the same. If the shares are those of a company incorporated outside France, the convention situates them at the place of incorporation: the structure must be checked case by case, including against the Article 3 condition and French anti-abuse rules.