The media have been full of the recent political upheavals and expected change of direction in France, following the election of President Hollande in place of President Sarkozy. Greater taxation of the wealthy is anticipated, and we have already noticed increased interest among French people in the possibility of making the UK their home.
It is not just the advent of President Hollande, however, that has brought this desire to increase the tax take from those regarded as more able to bear it. President Sarkozy had already introduced radical changes to the way in which trusts are taxed in France, and to the level of information about trusts that must be provided to the French tax authorities.
These rules apply to all trusts, wherever they are based, if they have any of:
- a French tax–resident settlor;
- property in France; or
- beneficiaries who are taxresident in France.
This means that existing English trusts – perhaps a long-standing family Will Trust – where the trustees have until now only had to be concerned with UK taxes, may find themselves with French tax obligations. This is probably most likely to happen if they have a beneficiary who has gone to live in France and become tax-resident there though, as the list makes clear, that is not the only possibility.
In cases where there is a French tax-resident beneficiary, trustees will need advice on two main issues. One is whether that French beneficiary counts as a ‘beneficiary’ as defined by the new French law. The other will be to find out whether, on the particular facts, the new law will give rise to an actual tax liability in France (which may depend partly on values and partly on the location of the assets), or whether the trustees will ‘merely’ be required to disclose information about the trust to the French authorities.
Any trustees who have French resident beneficiaries or French property cannot afford to ignore this subject. There may or may not be an actual tax liability, but if disclosure is required then it has to be made by 15 September this year. If there is an obligation to disclose it must be taken seriously, even if there is no actual tax to pay: failure to disclose when disclosure was necessary triggers a special tax levy at 5% of value on the worldwide assets of the trust, enforceable against the trustees and also against any Frenchresident beneficiary.