UK trusts: how are the settlor and the beneficiaries taxed in France?
Tax lawyer in Paris – discretionary trusts, interest in possession trusts and Franco-British estates
Key points
- All English trusts are covered: discretionary trusts, interest in possession or life interest trusts, will trusts… fall within the French trust regime (article 792-0 bis of the CGI) as soon as a settlor or a beneficiary is domiciled in France, or an asset is located in France.
- Inheritance tax: on the settlor’s death, the trust assets are taxed in France according to the family relationship with each beneficiary, or at 45% or 60% if the shares are not determined.
- Distributions: treated as investment income in France (article 120, 9° of the CGI), in principle at the 31.4% flat rate in 2026; any return of capital must be proven.
- On the UK side: the relevant property trusts regime (20% entry charge, ten-year charge of up to 6%) and, since April 6, 2025, an inheritance tax based on long-term residence (10 out of 20 years) rather than on domicile.
- 1963 treaty: it covers estates only. Transfers into a trust during the settlor’s lifetime may be taxed in both countries, with a possible credit in France subject to conditions (article 784 A of the CGI).
Summary
The United Kingdom is the birthplace of the trust. Many Franco-British families hold assets through a trust created by will or during lifetime, often to protect a spouse (life interest) or to pass assets on to children flexibly (discretionary trust).
When the settlor or a beneficiary moves to France, the trust comes within the scope of French taxation: annual filings by the trustee, inheritance tax on the settlor’s death, taxation of distributions. As the UK rules changed profoundly in 2025, the two tax systems must be analyzed together.
How does France treat a UK trust?
France applies its own definition (article 792-0 bis of the CGI): a settlor (settlor) places assets under the control of an administrator (trustee) for the benefit of beneficiaries. The English distinction between legal ownership and beneficial ownership (equitable interest) is disregarded: the assets are attributed to the settlor or, after the settlor’s death, to the beneficiaries, who are deemed to be settlors.
| Type of trust | How it works in the United Kingdom | Point to watch in France |
|---|---|---|
| Discretionary trust | The trustee freely decides when and to whom to make distributions. | Shares are rarely determined on the settlor’s death: risk of a flat rate of 45% or 60%. |
| Interest in possession / life interest trust | One beneficiary (often the spouse) receives the income for life; the capital then passes to the children. | Income taxable in France for the resident beneficiary; question of taxation on the death of the income beneficiary. |
| Will trust (including IPDI) | Created by will, for example to protect the surviving spouse. | The transfer follows French inheritance rules; the continuing trust remains subject to the filing obligations. |
| Bare trust | The beneficiary has an absolute right to the assets; the trustee is merely a nominee. | Characterization to be analyzed case by case; in practice, the assets are attributed to the beneficiary. |
| Pension trusts (pension schemes) | Retirement savings linked to employment or professional activity. | Possible exemption from the article 990 J levy, extended to individual plans by the Conseil d’État (CE, 7 May 2026, No. 511615). |
Which taxes apply in France?
1. Inheritance and gift tax
Trust assets are taxable in France in the cases set out in article 750 ter of the CGI: settlor domiciled in France (all assets), asset located in France (for example a Paris apartment held by the trust), or beneficiary domiciled in France for at least 6 of the last 10 years.
- Determined share on the settlor’s death: tax according to the family relationship (up to 45% in the direct line after an allowance of €100,000 per child).
- Global share passing to descendants: 45% with no allowance.
- Unallocated assets or other beneficiaries: 60%.
- Distribution of capital during the settlor’s lifetime: taxable as a gift according to the family relationship.
2. Income tax
Income distributions to a beneficiary domiciled in France are treated as investment income (article 120, 9° of the CGI), taxed in 2026 at the 31.4% flat tax, unless the taxpayer opts for the progressive scale. Returned capital is not income, provided it can be substantiated (trust deed, trustee resolutions, accounts separating capital and income). The France–UK income tax treaty of 19 June 2008 may limit double taxation of UK-source income.
3. IFI and the 1.5% levy
Real estate held by the trust is included in the IFI (French real estate wealth tax) of the settlor or of the beneficiary deemed to be the settlor who is domiciled in France (article 970 of the CGI). Failing this, the annual 1.5% levy under article 990 J applies to the trust’s real estate assets, payable by the trustee before June 15, with the settlor and the beneficiaries jointly and severally liable.
What filings and what penalties?
- 2181-TRUST1: creation, amendment or termination of the trust, within one month (article 1649 AB of the CGI);
- 2181-TRUST2: value of the assets as of January 1, each year before June 15;
- Filing upon transfer: introduced by the Law of 25 June 2026 on combating social and tax fraud (identity of the beneficiaries and information used to calculate the tax).
Penalties: a €20,000 fine per failure (article 1736, IV bis), an 80% surcharge on the tax evaded (article 1729-0 A), now applicable to all trust assets. These French obligations are in addition to registration of the trust with the UK Trust Registration Service: being compliant in the United Kingdom does not exempt the trust from French filings.
What does the 2025 UK reform change?
- End of the domicile test: since April 6, 2025, inheritance tax on assets located outside the United Kingdom depends on long-term residence (UK resident for at least 10 of the previous 20 years).
- Excluded property trusts: a trust’s non-UK assets are now protected from IHT only if the settlor is not a long-term resident; the trust’s status may therefore change if the settlor moves to or leaves the United Kingdom.
- Relevant property regime: 20% entry charge on transfers above the threshold (nil-rate band of £325,000, frozen until 2031), ten-year charge of up to 6%, proportionate exit charge. The Autumn Budget 2025 capped the ten-year charge at £5 million for certain trusts created before the reform.
For a settlor leaving the United Kingdom for France, these rules combine with French taxation: the same trust may remain within the scope of IHT for several years while also becoming reportable and taxable in France.
How to avoid double taxation?
- On death: the France–UK treaty of 21 June 1963 allocates taxing rights (real estate taxable where it is located, other assets according to the deceased’s domicile) and provides for a tax credit.
- During lifetime: the treaty does not cover gifts or transfers into a trust. A transfer subject to the 20% UK entry charge may also be taxed in France; article 784 A of the CGI allows, subject to conditions, the UK tax paid on assets located outside France to be credited.
- Ten-year charges: they have no equivalent in France and their creditability is not guaranteed; they must be factored into the overall cost of the structure.
Why use a tax lawyer?
- Analyze the trust instruments (trust deed, letter of wishes) under French tax law.
- Declare or regularize the trust in France and limit penalties.
- Characterize distributions and prepare evidence of capital.
- Coordinate with UK solicitors and trustees, particularly before a move to France or a departure from the United Kingdom.
FAQ
I am moving to France and am a beneficiary of an English discretionary trust: what are my obligations?
The trustee must declare the trust in France (Forms 2181-TRUST1 and 2181-TRUST2), even if it is already registered with the UK Trust Registration Service. The income distributions you receive will be taxable in France. On the settlor’s death, the assets passing to you may be subject to French inheritance tax, depending on the settlor’s domicile and your own.
Is a life interest trust for my spouse advantageous in France?
In France, the surviving spouse is exempt from inheritance tax, but the trust remains subject to the filing obligations and the income received by the spouse is taxable. On the spouse’s death, the transfer of capital to the children must be planned in advance to avoid the flat rates of 45% or 60%. An analysis before the will is drafted is recommended.
Does the France–UK tax treaty apply to trusts?
The treaty of 21 June 1963 applies to estates, including where part of the estate is held in trust, but it covers neither gifts nor lifetime transfers into a trust. For these transactions, only the credit provided for by article 784 A of the CGI may, subject to conditions, limit double taxation.
The trustee has not declared the trust in France: what should be done?
The situation must be regularized promptly: filing the missing returns, calculating any 1.5% levy that may be due and checking the income reported by the beneficiaries. The fine is €20,000 per missing return, and the settlor and the beneficiaries may be held jointly and severally liable. A voluntary disclosure, prepared with a lawyer, limits the risk.
Glossary
Settlor (constituant): the person who creates the trust.
Trustee (administrateur): the person or company that manages the trust assets.
Discretionary trust: a trust in which the trustee freely decides on distributions.
Interest in possession: a beneficiary’s right to receive the trust income.
Relevant property regime: the UK regime of periodic taxation of trusts (entry charge, ten-year charge, exit charge).
Long-term resident (résident de longue durée): a person resident in the United Kingdom for at least 10 of the previous 20 years, the test for inheritance tax since April 2025.
Further reading
- Articles 750 ter, 784 A, 792-0 bis, 970, 990 J, 1649 AB, 1729-0 A and 1736 of the CGI.
- BOI-DJC-TRUST and BOI-ENR-DMTG-30: French tax authorities’ guidelines.
- France–United Kingdom tax treaty of 21 June 1963 (estates) and treaty of 19 June 2008 (income taxes).
- See also: France – United Kingdom inheritance, US trusts, USA or UK / France inheritance.
About the author
Me Marc Uzan is a tax lawyer in Paris who has practiced tax law exclusively for more than 20 years. A graduate of the Master’s program in taxation at the Paris University of Law and of ESSEC, and holder of the DSCG, he assists individuals and families with their international tax matters: cross-border inheritance and gifts, foreign accounts, impatriation and expatriation, tax audits.
Page updated on September 26, 2026. The information above is general in nature and does not replace an analysis of your personal situation.
Book an appointment with Me Uzan – consultation at the office (Paris 9th arrondissement), by video call or by telephone.
