French Trust Laws and French Tax - November 2012

An update on French trust laws and tax rules, including information on wealth tax, inheritance tax ( IHT) and tax on rental income

** BDO and PKF merger **

Since this article was written and updates added, PKF and BDO companies have merged, effective from 10 April 2013. The French tax team remains unchanged and now operates within the BDO Guernsey office. It is apparent already that this merger offers great opportunities to extend the ranges of services and assistance they can offer to their clients.

New contact details:

Tel: +44 1481 724561
Fax: +44 1481 711657
Website: - click on French Tax

The original article follows:

Trust "Instruction" - published on 16th October 2012

The much awaited "Instruction" complementing the new French tax measures affecting trusts with French resident parties or French situs assets has proved to be a bit of "a damp squib". The "Instruction" does offer clarification on how the new measures integrate into the existing wealth tax regime and gift and inheritance tax rules as defined in the French tax code, but it remains quite general and does not deal with the subtleties of certain trust situations.

The text reiterates the definition of a trust but broadens this to include any trust-like arrangements and relationships regardless of how it is constituted. Foundations and certain nominee arrangements may thus be concerned if they result in legal relationships which are similar to those found in a trust deed.

The French administration confirms that where the settlor cannot be readily identified, they will look to the "real" economic settlor i.e. the person who contributed to the trust fund, even in the context of corporate settlors.

As expected, where the settlor(s) of a trust has died, the "Instruction" confirms that the trust assets are to be divided equally between the remaining beneficiaries, treated as "deemed settlors", for the purpose of wealth tax. The split may however be different if backed up in the terms of the trust or in any annex documents or provisions. The text extends the same allocation to the annual trust charge which may be payable in certain situations in lieu of wealth tax.

Wealth Tax and assets held in Trust

The general wealth tax assessment rules defining the exposure, exemptions, deductions of assets and liabilities for the purposes of determining the net taxable value, similarly apply to the assets held in trust. Therefore the text confirms the application of the temporary wealth tax exemption in respect of non-French assets held by individuals in their first five years of French tax residence. This applies to individuals who have not been French residents at any time in the five year period preceding their arrival in France.

However, when it is the trust that pays the annual charge in lieu of the wealth tax, none of the wealth tax exemptions (antiques, art collections, professional assets etc) apply. In addition, double tax treaty provisions do not apply to this specific charge which aims at penalising the omission of "proper" wealth tax reporting by the taxable party to the trust. Thankfully the "Instruction" specifies that the trust charge is limited to the "share" attributable to the taxable party. It is important to note that the taxable party may be a resident or non-resident of France in respect of French situs assets. Indeed, non-residents of France may have an exposure to French wealth tax if the net value of French assets (held directly or indirectly including now via a trust) exceeds the wealth tax limit.

Gift or Inheritance Tax

In terms of gift or inheritance tax the "Instruction" corrects an omission in the previous law texts and specifies that French residents who receive a gift or an inheritance from outside France but who have spent less than six years in France out of the ten years preceding receipt, are not exposed to French gift or inheritance tax. Exposure thereafter is subject to those rules and charges subject of course to any relevant double estate duty treaty provision.

In terms of successions the "Instruction" envisages three scenarios:

i) Provided that a specific share of the trust assets is distributed out to a designated beneficiary, normal inheritance tax rates apply after any relevant tax free allowance.

ii) Where the trust assets cannot be split and thus are due "globally" to beneficiaries who are all descendants of the settlor, the distribution as a result of a succession or lifetime gift, triggers a charge of the highest rate applicable to transfers between ascendants and descendants which currently is 45%.

iii) Trust assets which remain in trust after the death of the settlor (or deemed settlor) are subject to a 60% charge. This charge also applies in the situation where trust assets are distributed to persons who are not exclusively descendants and if the share cannot be individually identified as attributable to each of the beneficiaries.

Subsequent Distribution of Assets which have Remained in Trust

In the case of subsequent attribution of assets through distributions or terminations of a trust there should be no further gifts tax due, provided that the split of trust assets between the identified beneficiaries is identical to the one resulting from the succession. In the absence of proper evidence of the original split or, if the subsequent attribution differs from the split documented at the last transfer, gifts tax may apply. In this situation, the first beneficiary will be deemed to have gifted the asset to the new one(s).

Although not specifically stated, this rule would almost certainly affect distributions of assets of settlements in existence as at 31 July 2011 and reportable for the first time as at 1 January 2012 and subsequent years. It could also affect trusts concerned by the one-off reporting obligations depending on the type of modification that has taken place. As the law entered into force on 31 July 2011, the application of French taxes, including gifts and succession taxes, affects changes or events which have taken place between 31 July 2011 to date.

One can see how the addition of beneficiaries (or perhaps even removal) may affect subsequent distributions from the trust.

It is clear that there are still many areas of uncertainty and it is increasingly difficult to navigate the changes. Those trusts where the "rights" of the various parties can be clearly identified are the ones that are likely to be the easiest to handle.

Rental Income Tax rates confirmed for non-French residents at 35.5%

Given the conflicting comments we have received over the last few months on this particular issue, we have carried out further research on the exposure to the French social surcharges (CSG, CRDS and PS totalling 15.5%) of French furnished rental income received by non-French residents. Our findings indicate that this type of income is indeed liable to the surcharges. However, the French Legislative Department is still stating that this is subject to the publication of the "Instruction" detailing the "2012 Loi de finances rectificative". Nevertheless, the changes were codified in the "Financement de la Sécurié Sociale" which is the relevant code for matters concerning these social surcharges.

Furthermore, this text extends the application of the social surcharges to all French income sources which are primarily taxable in France by virtue of a double tax treaty. This does not come as a surprise, given the current fiscal climate and the French government's desperation to find new sources of taxable income. The government justifies the change by stating that non-residents are no worse off than French residents who already pay the charges on these types of income.

" Micro-BIC " regimes and " Réel " regimes

Given the above, those currently assessed under the "Micro-BIC" regime with a set deduction of 50% may well look into the benefits of having their property registered as "Meublé de Tourisme Classé" in order to benefit from the higher "Micro-BIC" deduction of 71%, or even registering under the "Réel" regime. This registration must be made before the 1st February in the tax year in which it is to apply. Further information on this registration and the various regimes can be downloaded from our website "publications page".

About the author

This article was provided by PKF (Channel Islands) Limited. For further information, assistance with the preparation of French tax returns or specific advice on the French tax implications of a permanent move to France or French property purchase and structuring, please contact Virginie Deflassieux or Catherine Le Pelley at, or telephone +44 1481 727927. Alternatively visit their website


This document has been prepared as a general guide. It is not a substitute for professional advice. Neither PKF (Channel Islands) Limited nor its directors or employees accept any responsibility for loss or damage incurred as a result of acting or refraining to act upon anything contained in or omitted from this document. PKF (Channel Islands) Limited is a member firm of the PKF International Limited network of legally independent firms and does not accept any responsibility or liability for the actions or inactions on the part of any other individual member firm or firms.


Further information on French tax can be found on our site using this link:

Moving to France

Please note that information given in the articles found here may supersede the relevant sections above.

Additional articles which may be of interest:

French Tax Changes in July 2012
Capital Gains Tax in France on Property
Tax in France
French Wealth Tax
Inheritance Tax in France and the Assurance Vie or PCP (Private Client Portfolio Bond)
French Tax Changes in 2011
Holiday Homes in France - how to avoid Capital Gains Tax when you want to sell

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