French farce as British expats face a shock £8,000 fine if they do not declare their inheritance trusts to the Paris tax office

Published 13th Jun 2012

Thousands of Britons living in France face a shock €10,000 (£8,000) fine in a draconian tax clampdown across the Channel, Money Mail can reveal.

The French Government is using a stealth ploy to squeeze extra cash from foreigners to help pay off its whopping €1.7 trillion national debt.

In a matter of days, all of the 200,000 British expats must for the first time inform the Paris tax office of any inheritance trusts they are named in or they have set up for relatives in the UK.

This includes even basic life insurance policies put into trust to avoid being included for IHT.

Forget, refuse, or fail to alert the authorities by this Friday, and they will be in line for a €10,000 fine.

The ruling does not affect the tens of thousands who have a holiday home in France, unless they have also put the property inside a trust or hold French assets in a trust.

Overseas advisers have told of chaos and confusion among many expats as the change in France’s government and lack of clarity over the penalty means few have heard of the huge fine.

Graham Keysell, of expat financial advice firm Spectrum in Paris, says: ‘The French authorities are absolutely gunning for British expats.

‘It’s a real mess: fear is spreading in the confusion because the penalties are big bucks.’

Lucy Hardwick, a director at accountancy firm Deloitte, blames poor understanding by French authorities.

‘Trusts are an Anglo-Saxon thing — they are little understood in France and have not been recognised until now. Declaring them to the authorities is an onerous burden,’ she says.

Many won’t even know they are supposed to alert the French taxman since, as a beneficiary, it’s not usual to even think of any future payouts as part of your wealth. The penalty even applies to tiny trusts worth £1,000 or less.

For those with trusts worth £200,000 or more, there will be an even bigger penalty hit — the larger of €10,000 or a 5  per cent charge. It means expats with a hard-earned £500,000 tied up in property and investments in the UK will be forced to cough up £25,000 if they fail to alert the taxman in time.

There is also growing concern that pensions transferred to France will be caught in the trap. To avoid the fine, British expats in France must urgently speak to their trust companies.

Those who do beat the deadline will still have to pay a tax bill — of between 0.25  per cent and 0.5  per cent — if their total wealth exceeds €1.3million (£1.05million).

The charges only apply after five years of full residency. Those who ignore the law risk being branded criminals.

‘Ultimately, the penalty for failure to pay the tax and penalties due could result in imprisonment,’ says Julie Hutchison, a trust expert at insurer Standard Life.


Why are trusts used?

British families have for decades used trusts to shelter property, share holdings, life insurance and cash nest eggs for children and grandchildren.

Their popularity is clear since trusts are counted separately from your estate when you die, soften the inheritance tax blow for relatives, and help divide up family wealth.

Originally, the official deadline to tell the French taxman about UK trusts was June 15. But it was flung into the air when socialist Francois Hollande ousted Nicolas Sarkozy as president last month.

With just 48 hours to go and no updates, Frederic Mege, head of French tax at Legal & General, believes August 31 a more likely cut-off date but there is no official confirmation. The French government still retains the power to ask British expats to declare their trust wealth at any moment.

Ms Hutchison says trust companies are supposed to alert the French authorities, not expats themselves.

But the fines for failure or lateness are passed straight to the customer.

The problem is trust companies like Standard Life or Legal & General often have no way of telling who is affected; contact is often lost once a pensioner has set up the trust and emigrates.

Gavin Pluck, Europe director at independent financial adviser Guardian Wealth Management, says: ‘These are bizarre new rules. The wealth tax covers a huge array of financial assets — you could have a low income but find yourself charged this year and paying a €10,000 fine,’ he says.

French property, shares, jewellery, and a variety of other assets are included in the wealth estimate.

Even self-invested personal pensions (Sipps) may be counted.

Source: ' ThisIsMoney '

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