One of the greatest challenges for expat residents of France is trying to understand French inheritance tax laws. The laws can be both complex and rigid. Common law countries often have more specific inheritance tax legislation favouring 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 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, so individuals can confidently make provisions to protect a surviving spouse, retain property control and provide for family members. Most of us are familiar with disputes between inheritors, which continue for years. It is, therefore, in the interest of expatriates to familiarise themselves with French inheritance tax 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. In the first instance, it is important to address the issue of French wills.
The need for a French will
Writing a French will if you live in France is vitally important. The deceased’s estate is distributed according to intestacy rules when someone dies without a will. In France, this means that the estate proceeds would be distributed in compliance with French succession law, irrespective of any personal wishes.
The French will and forced heirship
The separation of assets is linked to the relationship between the deceased and their heirs. France practices a forced heirship system, wherein there can be no deviation from the rules regarding how much can be passed on and to whom.
Let’s take a simple example of a married couple with two children. Assuming all assets were jointly owned by the couple, only the half owned by the deceased would be subject to inheritance tax. The other half would remain the property of the surviving spouse. The estate of the deceased would, after that, be split along the following lines:
- 1/4 to the surviving spouse
- 2/3rds to the children
- the remaining 1/12th would be distributed in accordance with the wishes of the deceased.
Where there is no expression of wishes, the court and family must decide what happens with the extra 1/12th.
**Note: Since 2015, an individual can request the application of Regulation (EU) No 650/2012, which was introduced to unify succession laws across EU member states. In their will, such an individual may choose to apply the law of their ‘Country of Nationality’ to the succession and administration of their estate. As such, an English person could leave their assets to whoever they wish without restrictions.
It should be noted that the regulation applies only to ‘who’ may or must inherit. It does not impact the inheritance tax rules. If you die whilst a French resident or own any French property, you will be liable to French inheritance taxes.
Allowances/Exemptions for French Inheritance Tax
In the UK, inheritance tax is levied on the deceased’s estate. A general tax allowance against the estate is known as the nil-rate band. This is currently set at £325,000, with everything over this threshold taxed at 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?
Like most developed countries, French inheritance tax follows a series of tax codes outlining rules on how estates are taxed on death and available allowances.
For expatriates and internationally mobile people, the challenge is somewhat more complex. Expats have to comply with rules in the country where they live and, in addition, rules in their home or even a third country.
French Inheritance tax regulations are clearly defined and apply equally to locals and foreigners. Essentially, there are two situations to consider:
- How to prepare correctly for future French inheritance tax-related issues?
- What liabilities occur when the tax becomes due?
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 those owned in their 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 considered in determining the tax liability. After that, tax is payable by each beneficiary on a progressive scale as per 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 €
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 Inheritance Tax and Gifting
Gifting is a popular way of managing the pre-tax situation of an individual’s estate. Knowing what can be gifted, the tax implications and what procedures need to be undertaken is vital. The best-laid plans can be undone by either misunderstanding the system or not following the correct procedures.
The gifting of property in France
France has specific rules regarding which assets can be gifted and the tax implications that apply concerning the relationship between donors and donees. There are particular rules regarding the gifting of property. For example, it is possible to transfer ownership from parents to children. In such circumstances, it is mandatory to employ the services of a ‘Notaire’, who will ensure that the correct paperwork is completed and stamp duty paid. Stamp duty is a form of transfer tax on property; it is currently 3% of the value. It should be noted that Notaire fees tend to be quite high. Those seeking to avail of the property transfer of ownership rules should therefore weigh up the costs and benefits of doing so before engaging in what may well turn out to be an expensive exercise.
Lifetime gifts
Gifting money, or liquid assets such as shares, is relatively straightforward. The amount that can be gifted within tax-free allowances depends on the level of family relationship. The most common form of gifting is between parents and their children. A specific tax-free allowance for lifetime gifts of up to 100,000 € per child is renewable every fifteen years. The tax-free allowance for gifting to grandchildren is currently 31,865 €.
When gifts are made/received, they must be registered with the French tax authorities to benefit from the allowance. A particular form needs to be completed and dispatched to the tax office; a Notaire can complete the form on your behalf.
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 | |
| Disabled Child | 159,325 | 159,325 |
| Between grandparent and grandchildren | 31,865 | |
| Between great-grandparents 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.
What to do with the gift?
What happens thereafter depends on where the gift recipient holds the money. If the children are tax resident in France, it would make sense to take advantage of available tax benefits by investing in an Assurance Vie policy. Assurance Vie contracts allow the ‘tax-free roll-up’ of funds if no withdrawals are made. If withdrawals are taken, tax rates are lower than most other options.
Children who are tax resident outside of France would have to abide by the tax rules of the country they live in. Donees resident in the UK may wish to consider the placement of the money in a trust for tax planning purposes.
Transferring assets as ‘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 inheritance tax table above.
Inheritance Tax Planning in France
Being aware of your rights regarding lifetime gifting, and understanding the legal options available regarding 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 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 worldwide 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 deceased’s estate. 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 extremely challenging for many expatriate residents. Fortunately, a solution is at hand for the preservation and development of capital through French life assurance vehicles.
The Assurance Vie offers 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 reach 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 policyholder’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 significant tax benefits when bequeathing legacies to unrelated beneficiaries such as friends or step-children, provided such distributions have been made before the 70th birthday of the bequeather. After this age, the tax advantage is restricted to €30,500 for all beneficiaries combined.
French Succession Planning
We have noted that each child can inherit up to €152,500 from Assurance Vie contracts free of French inheritance tax. This figure is in addition to the allowance per child of €100,000 mentioned above. This means that €252,500 can be inherited effectively free of tax on the first parent’s death. It is important to note that each parent is taxed independently. The situation could be repeated on the death of the second parent. The key factor in this instance is to establish the Assurance Vie contract correctly. This can be achieved by setting it up as individual policies or on a joint life-second-death basis.
This is where your financial adviser can help. The adviser will liaise with the family and their legal representatives to ensure that the Assurance Vie is constructed in the most tax-effective way possible. The advice needs to be personalised, as each individual’s situation differs.
Overseas pension transfers and death taxes
Many expats transfer their UK pension to a QROPS when living in France. The QROPS trust could be established with children as beneficiaries. When a Member satisfies non-UK residency of 10+ tax years at the date of death, their pension becomes eligible for succession tax in France. As outlined in the above table, there would be no succession/inheritance tax between spouses or civil partnerships (PACS). Children living in France would have a 100,000 € tax-free allowance each; succession taxes would be charged at progressive rates of 5% to 45%.
Were the children of British expats to move back to the UK or some other country before the Member’s death, the pension trust would pay the proceeds directly to them. As they would no longer be resident in France, there would be no French Succession tax. Be sure to seek professional advice on this matter.
Whatever your marital situation, it is important to consider inheritance planning to secure greater control over your estate, plan an orderly inheritance, and reduce the potential inheritance tax liability of inheritors.
If you want further information on using Assurance Vie products to mitigate Inheritance tax in France, please download our free guide.
Contact Us
For further information on French inheritance tax, please complete the form below: