French inheritance tax

17.04.17
7 minute read
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Inheritance tax neatly combines the only two real certainties in life - death and taxes. And as tempting as it might be to ignore both of these things, the chances are they'll catch up with us all in the end.

If you live some or all of the year in France, or have a property there, your assets might be liable to French inheritance tax. Similarly, if you’ve inherited from someone who is ordinarily resident in France, you need to understand if there are tax implications under the French system.

Inheritance tax is relatively complicated the world over, and France is no exception. Take professional advice to help you to understand your situation, and can plan accordingly. To start you off, here is a brief overview of how the inheritance tax system operates in France.

Overview of the French Inheritance Tax System

If the deceased was considered a French resident for tax purposes then inheritance tax applies on their assets worldwide. That means that even if the heirs are not French citizens or residents, the estate is still taxed in France.

You are considered resident for tax purposes if any of the following apply:

  • Your main home is in France

  • You work in France, either as an employee or self employed

  • You have significant economic interests such as investments in France

  • You spend more than 183 days a year in France

If you're unsure of your residency status or have received an inheritance but are unsure of the residency of the deceased, you should seek professional advice. The final decision lies with the French tax authorities.

There are strict rules applying to inheritance in the event that someone dies intestate or without any tax plans in place. It makes sense to make a will to understand your legal and taxation situation and ensure that your assets are divided according to your wishes.

The tax system is designed to encourage wealth to pass between family members. No inheritance tax is paid between spouses or those in a civil partnership.

Other beneficiaries of an inheritance may have a tax free allowance, on a sliding scale according to the closeness of the relationship with the deceased. Tax is levied on amounts exceeding this exemption, from only 5% on small amounts given from a parent to a child, right up to a 60% tax on some gifts to unrelated individuals.

Non-resident Inheritance Tax

The UK and other European countries have tax treaties in place with France.

These treaties mean that for EU citizens who are considered non-residents, only real estate in France is liable to French inheritance tax. This is the case even if the beneficiaries are not residents. Cash and moveable property outside of France are not subject to French inheritance tax for non-residents.

If you're not sure whether your home country has a tax treaty with France, you should seek professional advice. Depending on the French tax authorities’ view of your residency status, you may be liable for French inheritance tax on all of your worldwide assets.

Even if you are considered resident in France, you may have outstanding tax liabilities in your home country if you are still assessed as ‘domiciled’ there for tax purposes. In reality, tax treaties usually mean that tax paid in one country is offset against liabilities elsewhere, but you might need a professional to help you arrange this.

Inheritance Tax in France - The Details

In the event that the deceased did not make a will, there are legal restrictions on who can inherit. A fixed proportion of the inheritance, known as the reserve, is set aside for immediate family, according to the following table. The rest of the estate can be disposed of at will. You will notice that if the deceased had any children, the spouse is not automatically entitled to anything. In practise, by writing a will, you can ensure that your estate is distributed in line with your wishes.

Heirs * Réserve Freely disposable
Spouse (no children) 0.25 of estate value 0.75 of estate value
One child 0.5 of estate value 0.5 of estate value
Two children 0.66 of estate value 0.33 of estate value
Three children 0.75 of estate value 0.25 of estate value

Details from French-property.com, correct as of 1st June 2016

Registering a death

When a death is registered in France, the local mairie (town hall) informs the tax authority and passes over next of kin details. French banks and insurance companies must inform the tax  authorities of any accounts or assets in the name of the deceased, to help with calculations.

A declaration must be made to the French tax authorities within six months of a death or financial penalties will be applied. If the deceased lived is outside of France, but a declaration is required - for example, in the case of owning property in France - the deadline is increased to twelve months.

The tax authorities then have up to ten years to contest the details used to make a tax calculation if they believe that information has been withheld or incorrectly submitted.

If property is involved in an inheritance it is mandatory to involve a notary - and even if there is no property, a notary is able to guide beneficiaries through the declaration process. Although you have to pay fees for notary services, it could be worthwhile to ensure that all liabilities are discharged at once.

Deadlines for payment

Inheritance tax is payable by all heirs, who are jointly liable for the taxes. In effect this means that the French tax authorities could demand a full payment of the tax levied from any beneficiary.

Tax should be paid as soon as possible, but the authorities can allow for payments to be deferred for up to ten years for children and grandchildren, or five years for other heirs. The exception to this rule is if more than 50% of the inheritance is in the form of cash assets, in which case the tax is due within six months.

Allowances

There is no fixed allowance or exemption from tax set against an estate. Instead, under French inheritance tax law, each beneficiary receives an allowance which they can take tax free. There is no liability for inheritance tax between those who are married or in a civil partnership, but for couples who are neither married nor in a legally recognised partnership, the tax exemptions are very small.

Relationship to the deceased * Tax free allowance
Child €100000 from each parent to each child (or from each child to each parent)
Sibling €15932
Niece or nephew €7967
Unrelated (including partners who were not married or in a civil partnership) €1594

Details from French-property.com, correct as of 1st June 2016

There are a number of other concessions, for those who are disabled, for older siblings of the deceased if they lived together or in the case of one asset being a family home. Life insurance policies are not subject to tax as long as the amount received is under €152500. Above this sum, inheritance tax of 20% is applied.

Once the tax free amount is exceeded for a beneficiary, tax is applied in a graduated system, meaning that different rates of tax are levied on different ‘slices’ of the inheritance. In the case of the beneficiary being a child or parent, the following graduation applies:

Taxable amount * Tax rate
Up to €8072 5%
€8072 to €12109 10%
€12109 to €15932 15%
€15932 to €552324 20%
€552324 to €902838 30%
€902838 to €1805677 40%
Over €1805677 45%

Details from French-property.com, correct as of 1st June 2016

For brothers and sisters, inheritance above the tax exempted amount is taxed at 35% for amounts up to €24430, and at 45% for anything over this. Other inheritors are taxed at either 55% or 60% after allowances.

Other Considerations in French Inheritance Tax

If the deceased made any financial gifts to heirs in the fifteen years before their death, it is necessary to declare them. They may be taken into account when calculating the tax amounts owed.

One mechanic to allow efficient tax planning is for a surviving spouse to be left a ‘life interest’ in a property, allowing that they live in the house for the duration of their life before the property reverts to the next heirs. In this case, the tax liability is calculated according to the age of the spouse, with the children (assuming them to be the next beneficiaries) paying tax on only a portion of the value of the home.

Alternatively, a French property can be purchased ‘en tontine’, a system which ensures it then passes to the surviving spouse after one of the purchasing couple does.

Inheritance tax is complex. For families who have lost a loved one, navigating an unfamiliar tax regime can be especially daunting. It makes sense to take steps to limit tax liability, and simplify arrangements - most importantly drawing up a will to ensure your wishes are clear.

Once you settle your inheritance tax you may find yourself needing to transfer these funds to another currency. If you want have a bank account in France and want to avoid unpleasant international transfer fees and get the fairest rate possible, use Transferwise. TransferWise uses the real mid-market rate which is the only true rate and their service also helps you avoid unpleasant hidden fees involved in most money transfers.

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