French/UK Inheritance Tax: Marriage, PACS and Civil Partnership

Let’s imagine Arthur and Eleanor are in a committed relationship and have lived together for several years. They have never felt the urge to get married but are now planning to move abroad.

They have decided to move to Avignon and sell their home in Bristol because they can both work from home. Neither of them has any children.

When the first of them passes away, they want the survivor of them to inherit all their assets.

If they are living in France at the time of their death, the French revenue will likely have the right to tax their worldwide assets on death. According to the French tax system, the surviving partner would be liable to pay a huge tax bill (60% of the value of the assets they inherit). This is because under French law they would be considered ‘unrelated’ despite the fact they have been in a long-term relationship.

Arthur and Eleanor want to know what the best course of action is to avoid paying this tax and whether they should get married or enter into a PACS in France or a Civil Partnership in the UK.

If you pass away whilst you are domiciled in France, under the Anglo/French double inheritance taxation treaty, most assets you leave to your partner will be taxed at a flat rate of 60%. Only the first €1,594 is not subjected to French inheritance tax.

The UK tax system is more lenient with the amount subjected to inheritance tax. Broadly speaking, you can leave up to £325,000 to your partner before any inheritance tax is payable.

The amount payable and where it must be paid will be dependent on your place of domicile, the type of assets you own an where they are located.

As mentioned above, if you leave your assets to a spouse, there will be no inheritance tax to pay in France and the UK. A French marriage will be legally recognised in the UK and vice versa.

Marriage is available in both the UK and France to opposite sex and same-sex couples.

In the UK, the Civil Partnership Act 2004 introduced the option for same-sex couples to enter into a civil partnership, thus affording their relationship legal protection and recognition.

Under the Act, same-sex couples receive the same treatment for tax and inheritance much like a married couple would. For example, the exemption from inheritance tax applies to civil partnerships just as it does to married couples. Meaning that civil partners do not pay inheritance tax when inheriting from one another.

As of December 2019, the scope of the legislation widened to permit opposite-sex couples to enter into a civil partnership.

This means that both same-sex and opposite-sex can enter into a Civil Partnership and benefit from all the UK legal and tax protections that a married couple would.

The acronym PACS stands for Pacte Civil de Solidarité and is an agreement that is similar to a Civil Partnership in the UK.

Both opposite-sex and same-sex couples can enter into a PACS in France. The requirements are that the parties must be at least 18, and at least one of the parties must be resident in France or a French national and neither party to the PACS must be married or in a civil partnership. The parties must not be closely related.

A PACS confers many of the same tax rights associated with marriage in France, meaning that if you left your assets to your PACS partner on your death, they will not be required to pay any French inheritance tax.

Notably, there are some key differences between the French succession rights for those in a PACS as opposed to a marriage.

If a person dies without a will, the laws of intestacy determine who will inherit. Under the French intestacy laws, a surviving spouse has rights to stay in the family home for a limited period, and is entitled to inherit a percentage of the assets of the deceased. The percentage that they receive is dependent upon whether there are children.

The spouse is also entitled to receive 25% of the assets even if there is a Will, if the deceased had no children or surviving parents.

PACS partners do not have the same rights – and following the death of their PACS partner they will not automatically be entitled to any of their partner’s assets – it is therefore very important for them to write a Will.

In the UK those who have entered into a civil partnership have the same rights under the intestacy rules, as a married couple. A civil partner can also make a claim under the Inheritance (Provision for Family and Dependants) Act 1975 in the same way that a spouse can.

Amendments to the Civil Partnership Act 2004 now recognise PACS, which means couples that enter into a PACS in France will treated as civil partners in the UK.

Whether Arthur and Eleanor enter into a PACS, marriage or civil partnership will ultimately be up to how strongly they feel about any of the options. They should bear in mind that in the UK, marriage and civil partnership are treated the same – so the only consideration for them is which institution they prefer (although if they are planning on living in different countries in the future they should consider that a civil partnership will not be recognised everywhere in the world).

If they decide to enter into a PACS in France they should be aware that it is not identical to a marriage in France and although they will benefit from inheritance tax exemptions, they must write a Will if they wish for the survivor of them to inherit their assets when they die.