French inheritance tax and succession planning

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By Des Cooney

tax lawFrench Inheritance Taxes

One of the greatest challenges for French expatriated residents is trying to understand the inheritance laws of the country. The laws can be both complex and rigid in nature. Common law countries often have more straightforward inheritance tax legislation which favour the surviving spouse; by contrast France tends to put the interests of children to the forefront. French inheritance tax is known as the ‘droits de succession’. This is a tax on gifts and inheritances and is paid by each individual beneficiary depending on the amount inherited or received as a gift and their relationship to the deceased/donor. The gift or inheritance is taxable if the deceased/donor is resident in France at the time of death.

Such taxes are also levied for non-French residents, where the asset being gifted or bequeathed is located in France. This law has developed over recent years, to the extent that individuals can now make provisions with confidence to protect a surviving spouse, retain control of property, and make provisions for family members. Most of us are all too familiar with disputes between inheritors, which seem to go on for years. It is therefore in the interest of expatriates to familiarize themselves with the ‘laws of the land’ and take steps to plan for future eventualities. This section examines the basic rules concerning inheritance laws in France and how they apply to an individual’s estate.

Allowances/Exemptions for French Inheritance Tax

In the UK, inheritance tax is levied on the estate of the deceased. There is a general tax allowance against the estate known as the nil-rate band. This is currently set at £325,000, with everything over this threshold taxed at a rate of 40%. Things are different in France, where succession tax is levied on the beneficiary(ies) of the estate. French inheritance tax is thus paid independently by each heir on the share they receive. Each beneficiary is granted an allowance under the French system.  The personal allowances and exemptions vary according to the beneficiary’s relationship with the deceased. The most significant of these allowances is the one between husband and wife, or those in a French civil partnership (PACS), where there is no liability to inheritance tax.

How are assets valued for French Inheritance Tax?

Inheritance tax in France is payable on the ‘net assets’ of the deceased. Marital law provides that couples each own 50% of any joint assets, together with the assets owned in their own name. As such, on the death of a spouse, the net assets liable to inheritance tax would be 50% of any real estate they owned. The market valuation of the property on death is normally carried out either through a notaire or an expert appointed by them. The term ‘net assets’ means that any debts or liabilities would be settled on behalf of the estate before inheritance tax is levied. In addition, tax allowances would be deducted from any tax due for inheritors other than the surviving spouse. It is also necessary to declare any ‘gifts’ made to inheritors within the last 15 years, as these may be taken into account in determining the tax liability. Thereafter tax is payable by each beneficiary on a progressive scale in accordance with the amount received and the relationship to the deceased. The tax-free allowances and tax bands are currently as follows:

Between spouses or civil partnerships (PACS)

Band of value Rate of tax
On the whole amount received Total exemption of inheritance tax

Between parents and children

Tax free allowance per child: 100,000 € as of 17 August 2012

Above this level, taxes are payable at the following rate:

Band of value Rate of tax
Less than 8,072 € 5%
8,072 € to 12,109 € 10%
12,109 € to 15,932 € 15%
15,932 € to 552,324 € 20%
552,324 € to 902,838 € 30%
902,838 € to 1,805,677 € 40%
1,805,677 € upwards 45%

Between brothers and sisters

Tax free allowance per beneficiary: 15,932 €

Above this level, taxes are payable at the following rate:

Band of value Rate of tax
Less than 24,430 € 35%
24,430 € upwards 45%

Between nephews and nieces

Tax free allowance per beneficiary: 7,967 €

Above this level, the legacy is taxed at the following rate:

Band of value Rate of tax
On the whole amount received 55%

Unrelated beneficiaries / Concubines

Tax free allowance per beneficiary: 1,594 €

Above this level, the legacy is taxed at the following rate:

Band of value Rate of tax
On the whole amount received 60%

French gifting and succession allowances

Specific tax-free allowances are available for lifetime gifts and are currently renewable every fifteen years. Please note you must register the gift in order to benefit from this. The tax-free allowances are currently as follows:

Level of proximity Gift ( Euros) Succession (Euros)
Between parents and children 100,000 100,000
Surviving spouse or CPA – PACS Partner 80,724
Handicapped Child 159,325 159,325
Between grand parent and grand children 31,865
Between great-grand parents and great-grandchildren 5,310
Between brothers and sisters 15,932 15,932
Between nephews and nieces 7,967 7,967

In addition, tax-free cash gifts up to 31,865 € can be made by family members every 15 years, on the provision that the donor is less than 80 and the recipient is over 18. Gifts over and above these allowances are taxed at the inheritance rates shown above. The transferring of assets in the form of ‘gifts’ should be done in conjunction with your planning for wealth tax in France. N.B. Spouses and PACS partners are subject to French tax on gifts above the allowance – using the rates shown in the table above.

The use of Assurance Vie for inheritance tax planning in France

French inheritance tax

Inheritance Tax planning in France

Being aware of your rights with regards lifetime gifting, and understanding the legal options available in terms of the ownership of assets, enables you to reduce the burden of inheritance tax. Another approach to Inheritance Tax planning in France is to take advantage of the tax incentives offered by Assurance Vie contracts. The benefits of Assurance Vie policies are not restricted to income tax or capital gains tax; these vehicles can also be used as an estate planning tool in order to protect assets when living in France.

French succession laws

French inheritance tax and succession planning go hand in hand. Succession laws apply to the world wide assets held by anyone domiciled in France. The tax liability falls on the beneficiary and is applied to all the bequests and inherited rights of the estate of the deceased. Succession law specifically protects children from being disenfranchised from their inheritance. Since the surviving spouse is not regarded as a “protected heir”, estate planning can become an extremely challenging exercise for many expatriate residents. Fortunately, a solution is at hand for the preservation and development of capital through the use of French life assurance vehicles.

The Assurance Vie offers a shelter from the rules of “forced heirship”, making it a useful tool for spouses to transfer assets between one another and provide protection to the surviving partner in the event of death. The proceeds paid out from Assurance Vie policies are largely beyond the reaches of French succession law. In the event of death, the proceeds of an Assurance Vie are distributed to the beneficiaries (net of social taxes). It is however potentially subject to French inheritance taxes. The following rules apply:

  • Policies left to the spouse or PACS partner are exempt from inheritance tax
  • All other beneficiaries have an Assurance Vie tax-free allowance of 152,500€ per person, on the provision that investments were not made after the policy holder’s 70th birthday.
  • Any additional Assurance Vie distributions above these allowances are taxed at 20%, with an upper rate of 25% applying to any excess above 902,838 €

**Note: As of July 2011, beneficiaries of Assurance Vie contracts are no-longer exempt from the 20% tax if the policyholder was non-resident in France at the date of subscription. There are also significant tax benefits to be had when bequeathing legacies to unrelated beneficiaries such as friends or step-children provided that such distributions have been made prior to the 70th birthday of the bequeather. After this age the tax advantage is restricted to a total of €30,500 for all beneficiaries combined.

Whatever your marital situation, it is important to give thought to inheritance planning, in order to secure greater control over your estate, plan an orderly inheritance, and reduce the potential inheritance tax liability of inheritors.

If you would like further information on the use of Assurance Vie products for the mitigation of Inheritance tax in Franceplease download our free guide.

Contact Us

If you have any further queries, please contact us on: support@axis-finance.com

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