Changes to UK Inheritance Tax in 2025 – Will the Changes Be Felt if I am Living in France?

If you own assets in both France and the UK, those assets may be subject to both UK and French inheritance tax on your death. Both countries apply a tax on death, but the way that the tax is levied and the rate of tax are different.

In the UK, it is the ‘estate’ that is taxed and has its own tax-free amount. Broadly speaking, each estate has a £325,000 tax-free amount and tax is levied at the flat rate of 40% on the excess. The tax-free amount can however, in some circumstances, between a married/civil partnered couple reach up to £1,000,000.

In France, inheritance tax is payable by the person receiving the inheritance, the ‘beneficiary’. Their tax-free allowance and rate of tax are based on how closely related they are to the person who has died, and the amount that they are inheriting. Children receive the most generous tax-free allowance (up to €100,000) and pay the lowest levels of tax, with non-related people having a very small tax-free allowance and paying tax at the very high flat rate of 60%.

If you are domiciled (living) in France at the date of your death, the starting position is that the French tax revenue will tax your worldwide assets on your death.

This means that if you have moved to France but have kept a home in the UK, on your death, your French tax office will tax not only your home in France, but also your home in the UK.

If you are domiciled in the UK at the time of your death, HMRC will also wish to tax your worldwide estate. This means that if you have a holiday home in France, HMRC will include this when your estate’s inheritance tax is calculated.

A problem here is that the UK and French definitions of ‘domicile’ are very different. The definition of domicile under UK tax law is complicated and it is possible to have lived in France for many years and still be domiciled in the UK, under the UK definition of the term, if you intend to return to the UK in the future or you still have ties to the UK.

As you can imagine, from the rules mentioned above, there are many situations where double taxation can arise. For example, if you are living in France, but still considered domiciled in the UK – both the French and the UK tax authorities will wish to tax your worldwide assets on death.

To prevent this from happening, and to clearly state which country can tax which asset, and to provide double taxation relief, there is a double taxation treaty between the UK and France. This treaty dates back to 1963.

From 6 April 2025 the UK will no longer treat domicile as the ‘connecting factor’ when ascertaining if the UK can tax a person’s worldwide assets.

The UK will instead look to ‘residence’. If you have been UK resident for at least 10 of the last 20 years you will be considered ‘long-term resident’, and HMRC will assess your worldwide assets for inheritance tax.

If you are non-UK long-term resident, then HMRC will only assess your UK assets for inheritance tax.

This change will be welcomed by many people as it will make it much clearer if you are within the scope of UK inheritance tax or not. The existing domicile rules can be difficult to apply and small changes in your circumstances can make a big difference. It is anticipated that the new residence rule will add clarity for many people.

This is especially important for individuals that own assets in country which does not have a double taxation treaty with the UK.

How will the new ‘long-term’ residents rule apply to me?

If you are resident in the UK and have been so for at least 10 of the last 20 years, then HMRC will be able to tax your worldwide assets on your death. If you own a home in France, it will continue to be included for your UK inheritance tax calculation on your death. Your French property will still be included in your French inheritance tax calculation; however due to the 1963 double taxation treaty, if tax is payable in both countries it will be possible to credit the French tax due against the UK tax due on the French property.

If you have lived in the UK for fewer than 10 out of 20 years, then only your UK assets will be included in your estate’s UK inheritance tax calculations.

The current governmental guidance is that there will be no changes to the 1963 UK-French double taxation treaty. This treaty uses domicile as the connecting factor when discussing which country can tax which assets on death. When a person is ‘domiciled’ in both the UK and France then there are a series of tests to determine which country has the worldwide taxation rights.

Therefore, if you are now a French resident, but would still be considered a UK long-term resident (because you have still lived in the UK for at least 10 of the last 20 years), then the double taxation treaty will need to be applied and your domicile analysed to determine whether France of the UK can tax your worldwide assets when you die.

In short, if you own assets the UK and France only, the change of rules to long-term residence may not have any change on the application of inheritance tax on your death.