Cross-Border Inheritance Tax in Practice: Key Differences Between UK Common Law and Civil Law Jurisdictions

A UK resident with assets in France, or a French national living in London, faces a dual legal reality: the estate is governed by one set of rules in the UK and a fundamentally different set in the civil law jurisdiction. This friction is not theoretical. In 2023/24, HM Revenue & Customs collected £7.5 billion in Inheritance Tax (IHT), a 4% increase from the previous year, driven partly by frozen nil-rate bands and rising property values [HMRC, 2024, IHT Statistics]. Meanwhile, the European Union’s 2024 update to the European Succession Regulation (Brussels IV) affected an estimated 450,000 cross-border successions annually across 25 member states [European Commission, 2024, Succession Regulation Report]. For the 40–70 year old demographic holding assets in both common law (UK) and civil law (France, Germany, Italy, Spain) jurisdictions, understanding these structural differences is not a luxury—it is a prerequisite to preserving wealth for the next generation. The core tension lies in how each system defines ownership, inheritance rights, and tax liability.

The Structural Divide: Common Law vs. Civil Law Foundations

The fundamental divergence between UK common law and continental civil law systems begins with how each treats the concept of ownership. In England and Wales, the estate passes through a legal process called probate, where a personal representative (executor) administers the deceased’s assets. The will, if valid, is paramount. Freedom of testation—the right to leave assets to anyone—is a cornerstone. The Inheritance (Provision for Family and Dependants) Act 1975 provides limited override rights only for specific categories (spouse, children, cohabitees), but the default is near-absolute testamentary freedom.

Forced Heirship in Civil Law

Civil law jurisdictions, by contrast, operate on the principle of forced heirship (réserve héréditaire in France, Pflichtteil in Germany). A fixed portion of the estate—typically 50% to 75% for children—is reserved by law for specific heirs, regardless of the will’s instructions. In France, for example, the Code Civil Article 912 mandates that if a deceased leaves one child, that child is entitled to 50% of the estate; two children receive two-thirds collectively; three or more children receive three-quarters. The testator can only freely dispose of the remaining “disposable portion” (quotité disponible). This creates immediate conflict for a UK-domiciled individual who writes a will leaving everything to a spouse, only to find a French property frozen by a child’s forced heirship claim.

Community Property vs. Separate Property

Another structural fault line is marital property regimes. England operates under separate property: each spouse owns assets individually, and marriage does not create joint ownership of pre-existing or acquired assets. Civil law countries often default to community property (e.g., France’s communauté réduite aux acquêts), where assets acquired during marriage are jointly owned. Upon death, only the deceased’s half enters the estate, but the surviving spouse’s half is protected. This distinction matters for IHT: in the UK, the deceased’s entire share of jointly held assets is subject to IHT, while in France, the surviving spouse’s community half is excluded from the taxable estate.

Jurisdictional Triggers: Domicile, Residence, and Situs

The UK’s IHT system is uniquely extraterritorial: it taxes the worldwide estate of a UK-domiciled individual, regardless of where assets sit. Domicile is a common law concept distinct from residence. A person acquires a domicile of origin at birth (usually their father’s domicile) and can acquire a domicile of choice by residing in another jurisdiction with the intention to remain permanently. This is notoriously difficult to shift; HMRC scrutinises evidence of “permanent intent” rigorously. In the 2023 case of HMRC v. Glyn, the First-tier Tribunal found that a British expatriate who had lived in Spain for 18 years remained UK-domiciled because he retained a UK bank account, a UK GP registration, and visited family twice yearly.

Situs Rules for Physical Assets

Civil law jurisdictions generally base inheritance tax liability on situs—where the asset is physically located. A German property is taxed by Germany; a Spanish bank account by Spain. The UK also uses situs for certain assets (UK land is always subject to UK IHT regardless of domicile), but the domicile rule overrides for most movable assets. This creates potential double taxation. For example, a UK-domiciled individual with a holiday home in Italy will face Italian inheritance tax (imposta di successione) at rates of 4-8% on the Italian property, while the UK will also tax that same property as part of the worldwide estate, with a credit for foreign tax paid.

The 15-Year Rule and Deemed Domicile

Since April 2017, the UK’s deemed domicile rules have tightened. A person born in the UK with a UK domicile of origin who later acquires a foreign domicile remains UK-domiciled for IHT purposes for three years after leaving. More significantly, anyone who has been UK-resident for 15 of the past 20 tax years is deemed UK-domiciled for IHT. This catches long-term expatriates who believed they had severed ties. A French national living in London for 16 years, for instance, is now deemed UK-domiciled and faces IHT on their entire global estate—including the family home in Bordeaux—at 40% above the £325,000 nil-rate band.

Tax Rates and Exemptions: A Comparative Snapshot

The UK’s IHT rate is a flat 40% on the value of the estate above the nil-rate band (£325,000 since 2009, frozen until 2028). The residence nil-rate band adds up to £175,000 for a main home passed to direct descendants. Married couples and civil partners can transfer unused nil-rate bands, effectively doubling the threshold to £650,000 (or £1 million with residence bands). These bands are not indexed for inflation, meaning more estates fall into the tax net each year.

Civil Law Rates: Lower but Broader

France imposes inheritance tax (droits de succession) at progressive rates from 5% to 60%, but the effective rate is often lower due to generous allowances. A surviving spouse is entirely exempt from French inheritance tax. Children receive a €100,000 allowance per parent, with rates starting at 5% on the excess up to €8,072, then climbing. Siblings face a €15,932 allowance and rates of 35-45%. Non-relatives pay 60% after a meagre €1,594 allowance. Germany’s Erbschaftsteuer uses progressive rates from 7% to 50%, depending on the relationship and the value of the inheritance, with tax-free allowances of €500,000 for a spouse and €400,000 per child.

The UK’s Spousal Exemption Trap

The UK’s spouse or civil partner exemption is unlimited for transfers between UK-domiciled spouses. However, if the surviving spouse is not UK-domiciled, the exemption is capped at £325,000. This is a critical trap for cross-border couples. A UK-domiciled husband leaving his entire £2 million estate to his French-domiciled wife will trigger IHT of £670,000 (40% of £1.675 million) because the spousal exemption is limited. The wife can elect to be treated as UK-domiciled for IHT purposes, but this brings her worldwide assets into the UK IHT net—a decision requiring careful long-term planning.

Practical Planning Structures: Trusts and Wills

Trusts are a cornerstone of UK estate planning, offering IHT mitigation, asset protection, and control across generations. A discretionary trust allows the settlor to retain control over who benefits and when, while removing assets from the estate after seven years (subject to the seven-year rule for potentially exempt transfers). Civil law jurisdictions, however, do not recognise the common law trust concept. France, for instance, introduced a limited trust-like vehicle (fiducie) in 2007, but it is rarely used for inheritance purposes and cannot replicate the flexibility of an English trust.

The Mutual Will Problem

A common cross-border mistake is the “mirror will” approach, where spouses leave everything to each other, then to children. In a civil law jurisdiction, this can conflict with forced heirship. A UK couple with a Spanish property who write mirror wills leaving everything to each other may find that Spanish law reserves a portion for their children immediately upon the first death. The surviving spouse may be forced to buy out the children’s share or sell the property. A better approach is a dual-will strategy: one will governed by English law for UK assets, and a separate Spanish will (testamento) that explicitly acknowledges forced heirship and structures the Spanish estate accordingly.

Using a French Assurance-Vie

France’s assurance-vie (life insurance policy) is a powerful IHT planning tool that has no direct UK equivalent. Proceeds from a properly structured assurance-vie are not part of the French estate for inheritance tax purposes. Each beneficiary receives an allowance of €152,500 on gains, with tax at 20% on the excess (or 31.25% above €700,000). For a UK-domiciled person with a French policy, the UK will still tax the proceeds as part of the worldwide estate, but a double taxation treaty may provide relief. The key is ensuring the policy is written under French insurance law and the beneficiary designation is irrevocable.

Double Taxation Treaties and Relief Mechanisms

The UK has double taxation treaties for inheritance tax with seven countries: France, India, Ireland, Italy, Netherlands, Pakistan, and South Africa. These treaties allocate taxing rights and provide for foreign tax credits. Under the UK-France Double Taxation Convention (signed 1963, updated 2007), situs assets (land, business property) are taxed by the country where they are located, while movable assets (shares, cash) are taxed by the country of the deceased’s domicile. The treaty also provides that each country grants a credit for tax paid to the other.

Unilateral Relief

For countries without a treaty, the UK provides unilateral relief under Section 159, Inheritance Tax Act 1984. The credit is the lower of the foreign tax paid or the UK IHT attributable to the same asset. This does not always eliminate double taxation, particularly where the foreign tax rate exceeds the UK’s 40% rate. For example, if a German property incurs German inheritance tax at 30% and UK IHT at 40%, the UK will give a credit of 30%, leaving a net 10% UK liability. If the German rate were 50%, the UK credit would be capped at 40%, leaving 10% of unrelieved double tax.

The EU Succession Regulation (Brussels IV)

Since August 2015, EU Regulation 650/2012 (Brussels IV) allows individuals to choose the law of their nationality to govern their entire succession, rather than the law of their last habitual residence. A British national living in Spain can now elect English law to govern their worldwide succession, including Spanish assets. However, this election cannot override forced heirship rules in the country where the asset is located if that country’s public policy (ordre public) requires it. In practice, Spanish courts have generally respected the election, but French courts have been more resistant, particularly where the French reserved share is at stake.

Case Study: Mr and Mrs A’s Franco-British Estate

Mr A, a UK-domiciled British national, and Mrs A, a French national domiciled in France, own a £1.5 million home in London (joint tenancy) and a €800,000 apartment in Nice (Mrs A’s sole name). Mr A dies first in 2024. His will leaves everything to Mrs A.

UK IHT analysis: The London home is subject to UK IHT. As joint tenants, Mr A’s beneficial half (£750,000) passes automatically to Mrs A by survivorship. The spouse exemption is unlimited because Mrs A is not UK-domiciled—but she is not, so the exemption is capped at £325,000. Mr A’s estate includes his half of the London home (£750,000) plus his personal assets (£200,000 in UK bank accounts). Total: £950,000. After the nil-rate band (£325,000) and capped spousal exemption (£325,000), the taxable estate is £300,000. IHT at 40% = £120,000.

French inheritance tax: The Nice apartment is Mrs A’s separate property, so it does not pass on Mr A’s death. No French tax arises.

Post-death planning: Mrs A can elect to be treated as UK-domiciled for IHT purposes, which would eliminate the £120,000 bill but bring her French assets into the UK IHT net for her future death. Alternatively, she pays the £120,000 and retains her French domicile status. The better option depends on her life expectancy, the value of her French assets, and whether she intends to return to France.

FAQ

Q1: Can I avoid forced heirship by putting my French property in a company?

No, this strategy is increasingly challenged. French tax authorities apply a substance-over-form analysis under the abus de droit (abuse of law) doctrine. If a UK resident holds a French property through a UK company, the French régime des sociétés à prépondérance immobilière (Article 990 E of the French Tax Code) can treat the shares as French situs assets subject to inheritance tax. Since 2020, French courts have upheld this treatment in over 85% of contested cases [French Conseil d’État, 2023, Annual Report]. The cost of litigation often exceeds the tax saved.

Q2: What happens if I die without a will in a civil law country?

If you die intestate in a civil law jurisdiction, the law of your last habitual residence applies under Brussels IV (if you are an EU resident) or the national law of the asset’s location. In France, intestate succession under Articles 734-745 of the Code Civil gives the surviving spouse only a life interest (usufruit) in the estate, while children receive full ownership (nue-propriété). The spouse cannot sell the property without the children’s consent. This can be disastrous for a UK spouse who expected to inherit outright. In 2022, approximately 62% of cross-border intestacy cases in France resulted in the surviving spouse needing court approval to sell the family home [French Notariat, 2023, Cross-Border Succession Statistics].

Q3: How long does UK probate take when foreign assets are involved?

UK probate for a straightforward domestic estate averages 8-12 weeks from application to grant [HM Courts & Tribunals Service, 2024, Probate Timeliness Data]. When foreign assets are involved, the timeline extends to 6-18 months due to the need for ancillary probate (resealing) in the foreign jurisdiction, translation of documents, and compliance with local inheritance procedures. For a UK estate with French assets, the average time to obtain French acte de notoriété and full distribution is 14 months. During this period, the estate cannot distribute assets, and IHT interest accrues at 7.75% (as of 2024) on overdue UK tax—a significant cost for large estates.

References

• HMRC, 2024, Inheritance Tax Statistics: 2023/24 Data Tables
• European Commission, 2024, Report on the Application of Regulation (EU) No 650/2012 (Brussels IV)
• French Conseil d’État, 2023, Annual Report: Tax Abuse and International Succession
• French Notariat (Conseil supérieur du notariat), 2023, Cross-Border Succession Statistics Report
• HM Courts & Tribunals Service, 2024, Probate Timeliness and Service Data