I understand (though correct me if you have experience to the contrary) that Scottish proper liferents are accepted by French authorities as being equivalent to a usufruct and not as trusts, and do not therefore suffer the various reporting and tax consequences of trusts with French nexus.
Do readers think it is possible for an English domiciled person (who, for example, is resident in France) to create a Scottish proper liferent by Will covering English property? Given the difficulties of using English trusts in France, I am interested in the possibility of using Scots legal structures which may be better understood in France.
If I am not mistaken, I understand that you are content to create a UK domiciliary settlement for IHT purposes under ITA s.43(4) with a potential ten year charge. The Will will suffice to create the document aimed at by that subsection. However, you might be able to obtain certain CGT advantages as to uplift on death
After an informal discussion some years back with a senior QC, whilst it is not possible to create new legal interests or estates in English land outside s.1 (1) and (2) LPA 1925, it may be possible to create legal usufructs over personalty e.g. shares under English law without creating a settlement. Those familiar with legal profits à prendre and other legal interests over land set out at s.1 (2) LPA 1925 will be aware that such interests are not converted into equitable interests under s.1(3) LPA 1925. However the use of the term usufructuary in relation to entailed personalty in what is left of the unrepealed subsections in s.130 LPA 1925, after being savaged by ToLATA 1997, and the arrangement possibly being treated as taking effect at equity rather than at law might cause a conflict between the Scottish application to movables and the English situs rules on personalty.
I leave it to a Scottish lawyer to confirm whether a proper liferent over English personalty might be readjusted by the French administration as a trust under article 792-0 bis I CGI as taking effect in England as an equitable interest, albeit with no trustee or administrator holding the legal title.
For what that is worth, to my mind, you are correct in thinking that a Proper Liferent as distinct from a trust or improper liferent would not normally fall within the French definition of a trust under article 762-0 bis I CGI, unless of course the property is transferred to what the French define as an adminstrateur. I understand that the proper liferent is quite difficult to handle in practice as two competing rights are created over the same asset with no one arbitrating the issues.
The CGT advantage of a Scots proper liferent (over a foreign usufruct) is indeed a primary motivation here.
The underlying question is “is it possible by Will for a testator to give their spouse a right to enjoy/occupy English property for life in such a way that (a) qualifies for IHT spousal relief (b) provides a CGT uplift for the bare owner at the surviving spouse’s death and (c) is not treated as a trust in France if one of the parties is a French resident”.
I am simply wondering if the common civil law ancestry between Scotland and France (and the special CGT exemption in s.63 TCGA) may provide a solution.
The aulde alliance would certainly help even though the Proper Liferent does not function entirely in the same manner as the French usufructuary dismemberment where the usufructuary’s interest is separately vested. The French tax adminstration have clearly stated that a usufruit is not a trust and in my opinion would not treat a Proper Liferent as such as it does not fit the statutory definition at article 762-0 bis I CGI which requires a transfer of the asset to an adminstrateur for “ze trust” to exist.
Caveat: the impact of Regulation (EU) n° 650/2012 needs to be taken into account here. If you wish to take further advice, I would prefer instructions on that underlying issue as the current French perspective on the Unity of Succession of a deceased French habitual resident, whether domiciled there in the English sense or not, will need to be addressed as would their option for “British” nationality. I stress that this posting only addresses the position of a testator habitually resident in France who would otherwise be subject to French law.
Whilst Great Britain includes Scotland and it may be possible to opt generally for both laws under a “British” umbrella, you would need to check whether the estate and interest created by applying a Proper Liferent to English realty can take effect in Equity under LPA 1925 s1(3) &(8) despite no personal connection to Scotland and without any trustee implied or otherwise. HMRC would probably be delighted to attempt to argue that it created an actual settlement over and beyond the wall-papering requirement for a deed or written equivalent over the dilemma posed by two distinct legal interests/estates for the Proper Liferent to be considered an IHT settlement, and now, in my view obscenely as “relevant property” under s.43(4) ITA 1984. There is still no “trustee” as required for an English settlement to come into existence: Lord Wilberforce in Roome and Denne v Edwards  AC 279 at page 292 at G : “The Finance Act 1984 contains no definition of “settlement”…… So a “settlement” must be a situation in which property is held in trust.” He simply went back to the definition of a settlement under English law, in the absence of any express statutory (re)definition. HMRC consistently ignore the basic principles of English law when it suits them. This aspect of the Probate application in the UK involves the payment of IHT as usual only on UK situs assets unless the habitually resident testator was still domiciled in the UK on their decease.
Branching off to another issue affecting French assets subject to English law in à will with an option.
The French Cridons, i.e. notarial research and advice faculties, appear to have been unduly influenced into favouring an entirely unitary approach and do not now applaud separate wills for different jurisdictions, let alone a deliberate absence of provision for executorships in an English law will.
STEP members appear to have been instrumental in the obtaining of a monopoly upon the administration of executor styled wills in France independently of their common law limitations to the extent that some notaires are now wrongly refusing to deal with any will importing English law without a grant of probate being attached to it and ignoring the limited territorial scope of application of AEA 1925. Regulation 650/2012 art. 24 (2) does not serreptitiously enable the empowerment of an absence of executor’s powers. That scope is defined at s.58 as effectively limited to realty in England and Wales and to assets of individuals “domiciled” only within that jurisdiction, not those domiciled elsewhere and habitually resident elsewhere. The problem is worsened when an inexperienced notaire attempts to require English probate over a will with an option over what would otherwise be an entirely French succession, rather than proceeding directly to the notarial authentification required to transfer the French situs immovables and movables under the usual certificat d’hérédité.
Under the legal principles developed independently of and prior to Court of Probate Act and the AEA 1925 any individual acting as an executor has never needed a grant of probate to deal with most of the administration of an estate including the transfer and assent of assets under a separate will unless their capacity has to be “evidenced” i.e. proved. This is causing no end of havoc, misunderstanding and practical adminstrative problems in France, particularly where the French legatees are forced by this misunderstanding to apply for probate in England sometimes alongside any other English will, entailing the application for probate and any payment of IHT in the UK and where it is perfectly clear who the French legatees are and what their entitlement to the French assets addressed in the will is. Please note that s.1 AEA 1925 refers to the transfer of realty, ie. English realty to the Personal Representative, not foreign immovables outside the scope of the Act and the statutory jurisdiction of the Probate Court.
Thank you Peter - we too have faced difficulties with French notaires insisting on UK Probate when English law has been elected, which the Probate Registry will refuse to issue when there is no UK estate
It is a little depressing when a supposedly professional body dedicated to getting it right gets the wrong end of the sword of justice and applies a law which can only be described as that of the dystopian state of Frangleterre. I am tempted to push the point home a little harder.
If anyone else is having this or a similar difficulty, I am quite happy to establish a fomal opinion on the matter in French for the attention of a notaire who continues to attempt to advise on a law in which they are not competent with a forceful requirement that it be transmitted to the Cridon in question.
This post appears to have sparked interest in the issue, and a French étude notarial with bi-lingual capacity has already indicated a willingness to assist in these issues.
If assistance needed, please contact me.