Trust Funds

TRUSTS COULD SUFFER A €10,000 TAX CHARGE

Anyone who has any connection to a trust needs to be aware of recent changes to French legislation, as failure to disclose information to the impots (tax office) could result in a €10,000 penalty or 5% of the value of the trust, if greater.

Trusts have always been viewed suspiciously by the French authorities, and the new legislation affects trusts where either the settlors trustees or beneficiaries are French resident. Bizarrely, the owning of French assets by the trust will also bring it within the ambit of the new disclosure requirements, even if none of the people concerned are resident here! 

There has been no attempt to distinguish between different types of trust. It is understood that the new legislation applies to all trusts except those relating to pensions. This poses particular problems since discretionary trusts may include potential beneficiaries who are French resident. Regardless of whether they have received any benefit (and may never do so), the trust must still be declared to the authorities. Even worse, when the settlor dies, these beneficiaries will find the total value of the trust immediately included in their assets for French Wealth Tax calculations as they will then be deemed to be the settlor.

Failure to disclose the value of the trust on the Wealth Tax return will result in a levy of 0.5% over and above the normal Wealth Tax rate.

Those affected by these measures (whether settlor, trustee or beneficiary) must disclose their interest by 15th June 2012. Such disclosure will need to be accompanied by a formal valuation of the trusts assets as at 1st January 2012 and each subsequent 1st January.

Depending on individual circumstances, there may be a case for drawing up a ‘deed of appointment’ (after taking legal and tax advice) to exclude potential beneficiaries resident in France. Alternatively, the trustees may decide that the reporting and tax implications are so onerous that the best option could be to wind up the trust and divide the proceeds between the beneficiaries.

This is a complex issue, particularly as some expatriates have actually been encouraged to place their investments in trusts. These now need to be carefully re-evaluated since they could be disadvantageous.   

© Steven Grover 2012
A member of the Spectrum Group of Independent Financial Advisers

If you have a question, want to arrange for a free financial review or just want further information contact Steven on 0033 (0)325461631, www.financialexpat.com or e-mail steven.grover@spectrum-ifa.com