How is the estate of an American in France taxed?

John Kitching, a director of French Law Consultancy Limited, answers a reader query on inheritance tax on cross-border estates

5 February 2021
'Since August 15, 2015, the EU Succession Regulation has allowed people to use their wills to elect the law of their nationality to apply to how their estate is dealt with and who is allowed to inherit'
By Connexion journalist

Reader question: My citizenship and my will are both American. Because I am living in France, would French inheritance tax apply to my worldwide estate?

This is one of the most easily confused aspects of cross-border estates.

Since August 15, 2015, the EU Succession Regulation has allowed people to use their wills (made after that date) to elect the law of their nationality to apply to how their estate is dealt with and who is allowed to inherit.

If there is no express election of the law of nationality, then the law of the country of last place of permanent habitual residence applies.

However, taxation and inheritance law are not the same thing. This means:

  1. You cannot elect which country taxes your estate;
  2. Even if you elect the law of your nationality, you cannot elect the tax rules of your nationality to be the relevant tax regime;
  3. The EU Succession Regulation only applies to inheritance law. It does not apply to inheritance tax. If you die as a permanent resident of France, French inheritance tax applies to your worldwide estate.

This may include tax on assets in non-French jurisdictions but if there is a double-tax agreement in place between the countries, you can generally credit foreign tax against the French tax in relation to the same asset.

French inheritance tax is not always bad.

If you leave the estate to a spouse, Pacs partner or a registered civil partner, there is no tax due.

A bloodline or adopted child gets a €100,000 tax-free allowance and then tax applies on a sliding scale above that, from 5% to 45%.

The 20% band, however, covers up to €552,324.

Under your national law, you may be able to leave assets to a stepchild or an unmarried partner, but watch out as they would be taxed at 60% after an allowance of just €1,594 under French inheritance tax rules.

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