Will Both the UK and France Tax My French Holiday Home When I Pass Away?

I am a British national and I live in England, as have my family for many generations. I’ve owned a holiday home in the French Alps for the last 20 years. I usually spend 2 – 3 months each year there. I have been told that when I die, my family will have to pay French inheritance tax on my holiday home. Does this mean that they won’t have to pay any inheritance tax in the UK?

Answer: It will depend on your circumstances.

Double taxation treaty

The starting point is to assess which country has the right to tax which assets under the Anglo/French double taxation treaty 1963.

You say that you are resident in the UK and only spend 2-3 months a year in France. Based on the information that you have given it is likely that you will have a domicile of England, and certainly do not have a domicile of France.

Therefore, under the treaty, the UK will have the right to assess your worldwide assets for inheritance tax on your death, including your holiday home in France.

However, because the property is located in France, the French revenue can also assess your holiday home for French inheritance tax.

The tax payable in France will depend on the value of your property and who inherits it.

Children in France can each inherit up to €100,000 tax-free on the death of a parent. So if your holiday home is worth, for example, €250,000 and you have three children, you can leave the property to them equally, and there will be no French inheritance tax payable (because their combined tax-free allowance is in excess of the value of the property).

If there is tax payable in France, the rate of tax will be dependent on who inherits and how much they inherit. Generally, the more closely related you are to a person, the larger their tax-free allowance will be and the lower the rate of tax will be. An ‘unrelated’ person, such as a friend or step-child, has a very small tax-free allowance of only €1,594 and will pay tax at the flat rate of 60% on the excess.

The tax payable in the UK will depend on the value of your worldwide estate and the tax-free amount available to your ‘estate’.

At the time of writing, assuming that you have made no large lifetime gifts in the last 7 years, your estate will have a tax-free allowance of between £325,000 and £1,000,000. The exact amount of tax-free allowance will depend on whether you were married/in a civil partnership and have a home that you intend to leave to your children or grandchildren.

If your estate is valued in excess of your tax-free allowance, the excess will usually be taxed at the rate of 40%.

The good news is that if there is tax payable on the holiday home in both the UK and France, there is a law to prevent double taxation.

In your situation, if your holiday home attracts tax in both the UK and in France, your executors in the UK can inform HMRC and can ask either to have the value of the French tax deducted from the UK inheritance tax bill or they can ask for a refund of tax if both taxes have already been paid.

It is important to note that HMRC will only refund your executors the amount of tax charged over the French property in the UK. For example if 60% tax has been charged in France and 40% tax charged in the UK, HMRC will only refund/credit up to 40%.

Tax rates correct as at 29 October 2024