In the UK and, indeed, many “Anglo-Saxon”, (as the French say) countries, trusts are a part of life for everyday financial, family and inheritance planning. We use them to ensure that our beneficiaries get what we want them to and in accordance with the timing and manner that we desire. They are also used to “avoid” certain taxes, (noting that “avoiding” is perfectly legal, whereas “evading” is not.)
Trusts in France
The UK’s tax office, the HMRC, define a trust as follows:
A trust is not a legal person; it is a relationship. The persons in the trust relationship are:
The settlor provides the property for the trust. The trustees hold the trust property in their name, but it is held not for them but on trust for the beneficiaries. The beneficiaries benefit from the trust property – exactly how they do so depends on the terms of the trust.
The French fiscal authorities, however, view trusts as “opaque” structures designed to hide assets from them and define them as tools of tax “evasion”, thus they are viewed with a great deal of suspicion and hostility.
However, note that a trust, is not defined as illegal ‘per se’, more how it is set up, used and declared. Many people come to France linked to a trust that has been held for years, are declared properly, so are deemed to have been set up in good faith.
Many pages of French law have tried, and mostly failed, to properly define how trusts work. To be fair, it has not been made easy. There are estimated to be tens of thousands of pages of trust legislation, in the UK alone.
If you come to France with a trust already set up, it is legally required for it to be declared under the French tax code (code général des impôts, or CGI), article 1649 AB. Upon its declaration, expect to get many questions from the French tax office until they are fully satisfied that it is not simply evasion. If it is not declared, expect to be treated like a common criminal when they do finally discover it (discover it they will, as international legislation on regulation of trusts for anti-money laundering laws are making this increasingly easier).
Those not declaring a trust will be subject to a penalty, which is the higher of €20,000 or 12.5% of the trust value (CGI 1736 IV bis).
The only worse thing you could do, than come to France and not declare an existing trust, is to create a completely new trust whilst established as a tax resident of France.
As from July 2011, French residents placing capital into trusts have been viewed as gifting to a non-relative and will be taxed at 60% of the value given (CGI 792-0 bis II-2c & ref CGI 777 table III)!
It sounds like French legislation is done and dusted, when it comes to trusts, with some terrifying laws. Who in their right mind would want a trust when living in France? There is, however, more coming!
The, at the time, Minister Delegate for Public Accounts, Gabriel Attal, announced, in an interview, published Monday, 8th May by Le Monde, a series of measures to fight against tax fraud, creating a special intelligence service on taxes.
“situations in which the current tools of tax control are hindered, including the concealment of assets abroad in tax havens and opaque entities such as trusts, the use of tax exemption firms and the abusive optimization of large multinationals,”
Not fussed about your trust? You might want to start!
So What About Assurance Vie?
OK, so what about my financial planning in France the use of trusts is not advisable?
This is simple, “just create a French trust under French law!” I used quotes as I once said this to a French notaire, who was utterly astonished at such an utterly absurd notion.
“An assurance vie is very much like a trust”, I continued. He just stared at me with a mix of incredulity and sympathy (I assume he thought I had completely lost the plot). I continued to press my point.
Let’s go back to the HMRC definition of a trust:
A trust assurance vie is not a legal person; it is a relationship. The persons in the trust assurance vie relationship are:
- settlor … policy holder
- trustees … assurance vie provider
- beneficiaries … beneficiaries (so nice of them to keep it simple for us!)
The settlor policy holder provides the property for the trust assurance vie. The trustees assurance vie provider hold the trust assurance vie property in their name, but it is held not possibly for them but on trust policy for the beneficiaries. The beneficiaries benefit from the trust assurance vie property – exactly how they do so depends on the terms of the trust assurance vie.
The point is that an assurance vie is held outside of the estate, indeed treated separately from the estate. It even has different tax treatment. A trust that is not absolute (and many are not), may mean that the settlor can still benefit from the trust, so replacing “not”, with “possibly” above does nothing to weaken the argument. It is clear, therefore, that, in almost every way, an assurance vie behaves identically to a trust. I say “almost”, as an assurance vie can only hold money, whereas a trust may also hold chattels and buildings.
Even my amazed notaire finally capitulated, deciding that he completely agreed after we discussed all the different ways that an assurance vie could be manipulated, just like a trust, with countless various legal clauses.
It is vital to note that an assurance vie is absolutely not the only solution for financial and inheritance planning, just like trusts may not the best or only option in the UK. There are often many varied solutions, of which an assurance vie is often one to consider, which is why taking French-qualified advice is so important.
This article was first published in the Connexion September 2023