An Introduction to French Inheritance Tax
The rules
French inheritance tax is paid by each beneficiary (and not by a deceased’s estate) pro rata to the value of net assets received after deduction of all liabilities.
If you die domiciled in France, French inheritance tax is payable by each beneficiary on your worldwide assets. If you die domiciled outside France, then only your assets in France are liable to French inheritance tax.
Exemptions
The following amounts are (currently) not taxable:
€76,000 To widow or widower
€46,000 To ascendants and descendants
As an example, if the estate is worth €5000,000 and there are three children:
Estate value: €5000,000
Widow’s allowance € 76,000
Three children (3x 46,000) €286,000
Taxable €286,000
The exemptions apply equally to gifts, and are available in full every 10 years.
The rates
French inheritance tax is due on the registration of the declaration de succession. But delays or payment by instalments can be obtained from the French Revenue, if necessary, although interest will be charged.
French inheritance tax varies from 5 per cent to 60 per cent. The rates are as shown in the tables below.
Surviving Children and Parents
Band of value Rate of tax
Less than €7,600 5%
€7,600 to €11,400 10%
€11,400 to €415,000 15%
€415,000 to €520,000 20%
€520,000 to €850,000 30%
€850,000 to €1,7000,000 35%
€1,7000,000 upwards 40%
Surviving Spouse
The current rates of French inheritance tax payable by a surviving spouse are as follows:
Band of value Rate of tax
Less than €7,600 5%
€7,600 to €15,000 10%
€15,000 to €30,000 15%
€30,000 to €520,000 20%
€520,000 to €850,000 30%
€850,000 to €1,7000,000 35%
€1,7000,000 upwards 40%
Other beneficiaries
Brothers and sisters are currently taxed at a rate of 35% if the band of value they inherit is less than €23,000 (45% if more) with a tax-free allowance of €1,500. Relatives to the fourth degree are charged at a flat rate of 55% with a tax-free allowance of €1,500. Relatives above the fourth degree of other beneficiaries who are not related to the deceased by blood or marriage pay a flat rate of 60% with a tax-free allowance of €1,500.
Lifetime gifts
Lifetime gifts may be a tax-efficient way of disposing way disposing of your assets. Rates of tax and abatements are generally the same as for inheritance except that the abattement of € 1,500available to brothers and sisters, more distant relatives and unrelated beneficiaries in successions does not apply to lifetime gifts. However there are additional reductions available in relation to lifetime gifts. Notably that the tax is reduced by 50% if the donor is aged under 65 yearsand by 30% if the donor is aged between 65 and 75 years.
Usufruct (Usufruit)
One popular method to reduce the impact of French inheritance tax is for the property owners to give away their house to their children whilst retaining a lifetime right (usufruit) to remain in occupation. The person owning this lifetime right is also entitled to any income (such as rent) that the property may produce . The younger the donors, the more effective is this technique.
Example
A married couple of under 50 years of age each give half of the freehold of their French house (worth €900.000) to their three children. The value gifted is 50 per cent of € 900,000 or €450,000. Each child therefore receives one third or €150.000. However, because the freehold is subject to the lifetime occupational right of the parents, the French tax authorities will reduce the value of the gift by 40 per cent (in relation to the parents age), i.e. to €90.000 each child. There is no tax payable as each child can receive €92,000.
After 10 years, the €92,000 limit is available again. Assuming that the house is still worth €900,000, the other half is now given equally to the three children. As the parents are now under 60 years old, the reduction is 30 per cent (not 40 per cent). Each child therefore receives one third x 50 per cent x €900,000 x 70 per cent, i.e. €105,000. The tax on €105,000 per child is €650 a total of 3 x 650 = €1,950. This tax is reduced by 50% as the donors are aged under 65 years i.e. to €875.
Thus, the €900,000 has been given to the three children at a cost of just €875. However, the surviving spouse will retain a life interest and can always live in the house.
This example is based on the children taking the maximum tax-free allowance from each parent on each occasion.
Valuations
The usufruct is valued on a sliding scale. Similarly, the value of the freeholder (in the example above, the children receive the freehold) is on the same sliding scale. In French this is known as the nue-propriété. The valuations depend on the age of the life-interest holder. The older the donor, the greater the value of the freehold. Calculations if inheritance of gifts tax are based on the value of the nue propriété. No taxes are payable when the property reverts to the “nue propriétaire” on the death of the life-interest holder.
French this is known as the nue-propriété. The valuations depend on the age of the life-interest holder. The older the donor, the greater the value of the freehold. Calculations if inheritance or gifts tax are based on the value of the nue propriété. No taxes are payable when the property reverts to the “nue propriétaire” on the death of the life-interest holder.
Increased Rights of Inheritance for a Surviving Spouse
There was a radical amendment to the French rules of succession. Since 1st July 2002 the surviving spouse of a deceased person has the right to inherit a portion of the estate. Previously, spouses had no force heirship rights although property could have passed to them by virtue of Tontine provisions, the formation of an SCI or a change of matrimonial regime.
The surviving spouse is now granted a right of occupation of property in France for a period of one year from the death. The new law also provides for a spouse to inherit a quarter of the French assets if there are children and if those children are also the children of the spouse, he or she can take a life interest in all of the French assets. The spouse entitlement is increased to a half of the estate if the deceased is survived by parents but no children and further increased to three quarters of the estate if only one parent survives.
The new law will no doubt provide some comfort to British property owners in France yet the French laws of succession are still far more restricted than the English rules. It is still imperative that before French property is purchased, the intending owners take advice on the method of ownership and the preparation of French Wills.
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