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Is there a way to reduce 60% French inheritance tax for friends?

Partner article: Although not straightforward, we look at a possible solution to achieving this

You can ease French inheritance tax via a charity scheme Pic: Nattapol_Sritongcom

Reader Question: I am British but resident in France. I have no children and no partner. I wish to leave my estate to my friends and partly to charity, but I am aware of the 60% inheritance tax for my friends. Any suggestions?

As you do not have children, you can freely leave your estate to whomever you wish. The downside is, as you are aware, the French inheritance tax rate when leaving assets to an unrelated beneficiary – a miserly allowance of €1,594 tax-free, with the remainder being taxed at 60%. 

If you have enough disposable cash, you could invest in an assurance vie contract and nominate your friends as beneficiaries. Depending on your age at the time of investing, you could leave a significant sum free of tax to friends. 

However, for many people, their assets are tied up in their house or capital assets and an assurance vie policy is not always practical. 

French or UK charities?

I would currently warn against leaving assets from a French estate to a UK charity – post-Brexit, that could be taxed at 60% here as there is currently no mutual agreement between the UK and France relating to the inheritance tax treatment of charities. 

If you are happy to leave assets to a French charity, there is an interesting scheme with Fondation de France (FDF), under which you leave a legacy or all of your estate to FDF with a request that they leave a share to your friends. 

For example, if you leave €100,000 to Mr A, he would pay tax of €60,000 and receive €40,000. However, if you leave €100,000 to FDF, with a legacy to Mr A, then FDF leaves the net legacy of €40,000 to Mr A, and FDF pays the tax on that (60% of €40,000 = €24,000). Mr A gets €40,000. FDF ends up with €36,000. 

It requires careful drafting, but is a neat solution. Your friend does not escape the tax, but you get to direct some of the tax to a charity.

Author: John Kitching, French Law Consultancy. French Law Consultancy provides French legal advice

Related links: 

French property tax: buying, selling, capital gains, inheritance

As a widow do I need a French will to  ensure house goes to children?

French property rights: How does a tontine clause work on first death?

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