The way in which a French usufruit is constituted may remove it from any threat of "settlement status"

Put simply, article 720 and 721 of the French code civil refer to assets passing under a French succession by devolution not by any disposition - a disposition is required for the last paragraph of s.43(2) ITA 1984 to apply. That is a question of the law of equity within living memory and beyond it.

Even where a gift or testamentary disposition is involved, under these two articles the portion of the gift of legacy that is within the réserve héréditaire devolves under primary law, and not by way of the libéralité (gift or testamentary disposition) itself. Note that the law applicable to movables can be that of the place of their situation.

In other terms, that places HMRC’s current “view” or position on the constitution of a usufructuary dismemberment in a legal vacuum as there is no disposition effecting the transfer of the rights under the lex rei sitae whether movable or immovable. A French succession is administered through an attestation notarié, not by reference to probate through a will. HMRC and several city Firms have succumbed to the temptation to fill the false vacuum created by their misreading of s 43(2) with an irrelevancy.

A transfer of French property within the réserve is not a disposition but a dévolution. The two terms mean the same thing in both languages thanks to our Norman legal heritage (pun intended).

That invokes the issue of the EU Succession Regulation rules and their application to British residents with immovable properties in France. It may be better to simply lapse into the renvoi over French immovable property to France and allow a usufruit to devolve on the surviving spouse and the nue-propriété to devolve to the issue, for example. HMRC cannot assert that any form of relevant property settlement has been created in that case as there is a simple devolution and no disposition. As the reader will note the incoherently and inaptly termed “fiction” is only established once there is a disposition: you cannot have a settlement without a disposition into a form of trust - a point which appears to have eluded most commentators’ attention.

The question of inter vivos gifts of either movables or immovables requires specific individual attention to procure the benefit of the dévolution umbrella under article 721.

Anyone needing help with the practical implications of this post is invited to contact me.

The matter is not entirely complicated by the recent law enabling French resident heirs to claim a réserved share of a French succession where the the foreign law governing it does not give effect to a sufficient réserve right in favour of a French resident heir. Simply excluding a spouse of r issue for benefit under a law of the United Kingdom under the Succession Regulation may no longer function in France without complications

Peter Harris

Whilst I appreciate that the majority of advisers would tend to treat the extinction of a French usufruit over an immovable or movables created in a post-2006 dismemberment as giving rise to an immediate or serial post-death interest and treat the whole immovable as if it had remained in the succession (not estate) of the deceased usufruitier, this is entirely baseless in law and under s.43(2) ITA.
If the nue-propriété has already been transferred to the nu-propriétaire within the charmed circle of the reserved heirship provisions, it has devolved under either article 720 or 721 Code civil and there is no transfer of value out of the deceased usufruitier’s succession or estate either in France or in the UK. There is no “disposition” and therefore no trust, settlement or interest in possession over settled property. S.43(2) ITA 1984 and HMRC’s cherished invention of a pseudo-fiction cannot bite.

Paul Davidoff kindly pointed out the type in my references to s.43(2) ITA, for which my thanks. S.46 is not the section concerned and the post has been corrected accordinly ;