French Inheritance and Gift Tax
This page outlines:
- Making a will
- Inheritance tax
- Gift tax
- Inheritance & gift tax optimisation
MAKING A WILL
If you have any assets in France, you should draw up a will with assistance from a notaire.
Until 2015, if your estate included French property, it was almost always necessary to respect the standard FRENCH INHERITANCE RULES which gives significant rights to certain heirs ("les héritiers réservataires"):
- your children and their descendants must inherit at least half your estate (if 1 child), two thirds (if 2 children) or three quarters (if 3 or more) - in equal proportions
- if there are no descendants, your parents have the right to reclaim certain gifts.
- if there are no descendants, your spouse - if not divorced - must inherit at least one quarter.
If there are descendants, you can leave your spouse
- full ownership of the remaining estate
- or a life-time interest in the whole estate (if there are no children from a previous marriage)
Since 2015 you can instead request the application of REGULATION (EU) No 650/2012 by specifying in your will that you wish to apply the standard inheritance of your COUNTRY OF NATIONALITY. So for example, if you’re English you can leave your assets to whoever you wish without restrictions.
Please note however that the regulation applies only to WHO may or must inherit.
It does not impact the inheritance tax rules.
If you die whilst French resident, or if you own any French property, you will be liable to FRENCH inheritance taxes.
French inheritance tax is paid independently by each heir. Allowances & rates depend on their relationship with the deceased.
There are no inheritance taxes for legacies between spouses and PACS partners. However, please remember that lifetime gifts ARE still taxed...
The tax-free allowances and tax bands are currently as follows:
Children & parents: 100000€ allowance each (grandchildren & great grandchildren only have allowances of 1594€ for inheritance),
above which tax is paid at the following rates:
- to 8072€ 5%
- 8072 to 12109€ 10%
- 12109 to 15932€ 15%
- 15932 to 552324€ 20%
- 552324 to 902838€ 30%
- 902838 to 1805677€ 40%
- above 1805677€ 45%
Brothers & sisters: 15932€ allowance each, above which tax is paid at the following rates:
- to 24430€ 35%
- above 24430€ 45%
Nephews & nieces: 7967€ allowance each, above which the legacy is taxed at 55%
Other beneficiaries: 1594€ allowance each, above which the legacy is taxed at 60%.
(Unmarried couples must therefore be particularly careful to make appropriate plans).
There are six different legal methods for making gifts. The above mentioned rules for "héritiers réservataires" apply and in certain cases, "re-distribution" of earlier gifts can be ordered by the courts to ensure equality amongst all the children.
Specific tax-free allowances are available for lifetime gifts and are currently renewable every fifteen years (previously every 10 years). Please note you must register the gift in order to benefit from this.
The tax-free allowances are currently as follows:
Children : can receive 100000€ from each parent, 31865€ from each grandparent and 5310€ from each great grandparent
Spouses and PACS partners: can receive 80724€
Brothers & sisters : can receive 15932€
Nephews & nieces : can receive 7967€
In addition, tax-free cash gifts up to 31865€ can be made by family members (every 15 years) so long as the giver is less than 80 and the receiver is over 18.
Gifts beyond these allowances are taxed at the inheritance rates shown above.
NB Spouses and PACS partners ARE subject to French tax on gifts above the allowance - using the rates shown in the “children & parents” table above.
There are additional rules for gifts relating to life tenancy known in French as démembrement. The usufruitier has exclusive use of the assets during his lifetime - but on his death, the assets pass automatically (without further inheritance taxes) to the nu-propriétaire.
OPTIMISATION : HOW TO REDUCE INHERITANCE & GIFT TAX
1. Know your rights
For example, regarding lifetime gifts:
- Transfer assets to children & grandchildren within the allowance limits every 15 years.
- Ensure tax-free allowances for cash gifts from family are used before they reach 80
- Help family members to create a company or transfer an existing family business.
- Other exemptions are available concerning land, historic buildings, etc
2. Share ownership of assets
Depending on the relationship with each beneficiary, the available legal options should be considered, for example
- Marriage regimes (Communauté universelle, séparation des biens, etc)
- Property companies (eg SCI - Société Civile Immobilière)
- Pacte tontinier (Tontine clause)
- Démembrement (French form of life tenancy as described above).
3. Use schemes with tax incentives
The main scheme attracting significant inheritance tax benefits is the French life insurance policy (assurance vie). Each beneficiary can receive 152500€ tax-free (above which there is a tax rate of 20 or 25%) except for policies left to spouses (or PACS partners) which are entirely tax-free.
However, there is clearly no point in saving tax if the financial performance is poor.
We strongly recommend obtaining advice from qualified professionals in France - and we would be glad to assist.
Copyright © 2023 Cabinet Gregory Latest modification: 29 January 2023 Email: firstname.lastname@example.org