French inheritance tax

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 their share of your worldwide assets. If you die domiciled outside France, then only your assets in France are liable to French inheritance tax.

Exemptions

Since August 2007 there is no longer any French inheritance tax payable on transfers on death between spouses and members of a PACS (pacte civil de solidarité)

The following amounts are (currently) not taxable:

€151,950 To ascendants and descendants

The rates

French inheritance tax is due on the registration of the déclaration 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

The current rates of French inheritance tax payable by surviving children and surviving parents are as follows:

Other beneficiaries

Brothers and sisters are currently taxed at a rate of 35% if the band of value they inherit is less than € 23,299 (45% if more) with a tax-free allowance of €15,195. Relatives to the fourth degree are charged at a flat rate of 55% with a tax-free allowance of up to € 15,195. Relatives above the fourth degree or 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 €1,520.

Lifetime Gifts

Lifetime gifts may be a tax-efficient way of disposing of your assets. Rates of tax and abattements are generally the same as for inheritance except that the abattement of € 15,195 available to brothers and sisters, and there are certain other allowances depending upon the proximity between donor and donee. Furthermore, in the event of a lifetime gift, there is a tax liability on a surviving spouse or the survivor of a couple having completed a PACS, which differs from the position on death.

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.

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 of 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.

It is important to note, though, while in some instances there can be a substantial reduction in the exposure to inheritance tax, there can nevertheless be some fiscal disadvantages to such a structure. This all depends on your personal circumstances, and a specific analysis of your situation would be advisable, to establish if this option would be right for you.