France–UK Business Succession

The transfer of a family business between France and the United Kingdom raises complex legal and tax issues.

Two different legal systems coexist. Inheritance rules are not identical. Taxation can vary significantly.

Without proper planning, there is a twofold risk:

• A high tax burden
• Family tensions or governance gridlock

This article outlines the key points to consider regarding France-UK international inheritance, for general information purposes.

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Profoundly different legal systems

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French civil law: the forced heirship reserve

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In France, inheritance law is based on a central principle: the forced heirship reserve.

A portion of the estate must mandatorily go to certain heirs, particularly children.

This minimum share is protected by law. The testator cannot dispose of it freely.

In practical terms, this limits the freedom to organize the transfer of one's business if it represents a significant portion of one's assets.

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British common law: testamentary freedom

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In the United Kingdom, the system is based on common law and the principle of testamentary freedom.

In principle, individuals are free to distribute their assets as they wish through a will.

However, there are corrective mechanisms in place, particularly to provide financial protection for certain dependent relatives.

While this freedom offers greater flexibility, it can also lead to imbalances if no prior planning has been put in place.

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Inheritance tax: distinct approaches

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Taxation is one of the key issues in transferring a family business between France and the UK.

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In France: inheritance tax and specific provisions

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Inheritance taxes can be significant, especially when transferring assets outside of the direct line of succession.

However, French law provides certain relief mechanisms, most notably the Dutreil Pact.

This provision allows for a partial exemption on the value of transferred shares, subject to strict conditions:

• Collective retention commitment
• Individual commitment by the heirs
• Operational business activity of the company
• Management functions performed

These conditions must be strictly adhered to. Any error can jeopardize the tax benefit.

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In the United Kingdom: Inheritance Tax (IHT)

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In the United Kingdom,UK Inheritance Tax can reach up to 40% of the taxable value of the estate.

However, exemptions exist for business assets through Business Property Reliefmechanisms.

In certain situations, these mechanisms can significantly reduce the taxable base.

The analysis depends on the nature of the assets, their location, and the tax status of the deceased.

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Which law applies to the estate?

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Since the entry into force of the European regulation known as Brussels IV (Regulation (EU) No 650/2012), an individual may, under certain conditions, choose the law applicable to their estate.

This choice may concern:

• The law of their nationality
• The law of their habitual residence

It is therefore possible, in certain situations, to opt for French law or English law.

This choice must be formalized in a will. It can have significant consequences for:

• Forced heirship
• Freedom of disposition
• The overall organization of the transfer

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Structuring the transfer: what legal tools are available?

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An international transfer involves more than just drafting a will.

It requires a comprehensive approach to how assets are held and organized.

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The family holding company

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Creating a holding company can help to:

• Consolidate shareholdings
• Structure governance
• Facilitate gradual succession

In a Franco-British context, this structure can simplify the legal and tax interpretation of your assets.

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Asset dismemberment

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Under French law, dismemberment (splitting ownership into bare ownership and usufruct) is a frequently used tool.

It allows you to organize:

• Gradual succession
• Potential reduction of the taxable base

This mechanism must be carefully reviewed when assets are located abroad.

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Donation-partage (gift-partition)

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A lifetime gift-partition allows you to plan your estate while you are still alive.

It promotes:

• Fairness among heirs
• Reduced risk of disputes
• Greater business stability

In an international context, coordination with applicable foreign law is essential.

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The risk of double taxation

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One of the most sensitive issues concerns double taxation on inheritances between France and the UK.

There is no specific inheritance tax treaty between France and the United Kingdom.

In certain situations, the same asset may be taxable in both countries:

• Due to its location
• Due to tax residency
• Due to the deceased's ties

Domestic mechanisms may allow for tax credits or relief.

However, each case must be analyzed individually.

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Family governance and business longevity

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Taxation is not the only issue at stake.

Passing on a family business also requires careful consideration of:

• Agreements between heirs
• The organization of power
• Corporate bylaws
• Post-transfer management

Without foresight, family conflicts can undermine business operations.

Establishing appropriate governance mechanisms helps preserve the company's stability and value.

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Why planning ahead is essential

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A lack of planning can lead to:

• A heavier tax burden
• Decision-making deadlocks
• Disputes between heirs
• Loss of control over the company

Conversely, thoughtful structuring allows you to:

• Identify the applicable rules
• Anticipating tax implications
• Securing the transfer
• Preserving family harmony

Transferring a family business with assets in both France and the United Kingdom requires a coordinated cross-border approach.