Taxation on death

French inheritance tax (droits de succession) is a separate issue to ‘inheritance law’, which relates to how property may be left.

For example, a person’s estate could be subject to Californian law but still assessable for French inheritance tax.

In cross-border inheritances, taxation differs depending on whether a treaty on inheritance tax exists between the other country and France. A list exists. They may or may not also deal with gift tax (this is the case with the US). 

As to which inheritances attract French tax, this depends on where assets are located and where the deceased and recipients are fiscally domiciled (ie. have their main home). 

If the deceased was French-domiciled, beneficiaries are liable to pay French tax on all assets received, located in France or abroad, unless an exemption applies (for example due to a clause in a treaty).

If the deceased was not a French tax resident, then, if the beneficiary was a French tax resident on the date of the death, and had been living in France for at least six of the previous 10 years, they are eligible to pay inheritance tax on assets received, located in France or abroad. However, rules for assets from abroad can vary if there is an inheritance tax treaty.

If the beneficiary is not a French tax resident, only certain assets located in France are taxable.

The US and UK treaties allow that most forms of US/UK-situated assets received from a US/UK resident, are not taxable for a recipient in France. However, there is no law exempting such inheritances from having to be declared in France to the recipient’s tax office. 

The only exemptions are for children or spouses where the total value of the estate was less than €50,000, or for other beneficiaries if the estate was worth less than €3,000.

One tax lawyer stated there could be a moderate fine for not filling in the forms, but it would not be at a percentage of the (untaxable) inheritance.

In the example of a UK-resident deceased person, items that will be subject to French inheritance tax include, for example, French real estate, a French business, a French-registered car or certain other items physically located in France, such as furniture or art.

In the case of money in French accounts of a UK resident, French banks often will not release it, if the sums are large, without a certificate from the Service des Impôts des Particuliers Non-Résidents to the effect that no tax is due. 

Once the estate's net value has been calculated, inheritance tax is paid by each beneficiary on their share at set rates and subject to allowances that vary by relationship; it is not taken off the estate as a whole. A simulator exists to check what you may be due to pay.

A spouse, a French Pacs partner or British civil partner pay no inheritance tax.

Under certain conditions, brothers or sisters living in the same house as the deceased are also exempt. 

They must be single, widowed or divorced at the time of the death, aged 50 or more or disabled, and have lived with the deceased continuously for the past five years. 

There is an allowance of €159,325 for heirs with a physical or mental disability preventing them from working, which can be combined with other allowances. Allowances are reduced by the amount of these that the person benefited from when receiving lifetime gifts from the deceased in the last 15 years.

The following are deductible from the estate:

• Cost of making a will and opening the succession

• Debts of the deceased existing at the date of death

• Unreimbursed medical expenses for recent care before death

• Funeral costs, up to €1,500 (it is also possible to ask the deceased's bank to pay up to €5,000 from one of his or her accounts to pay for these, on presentation of an invoice)

• Gifts or legacies made to certain recognised charities

• Where a surviving spouse or direct heir is entitled to réversion de rente viagère (some continuing income from an arrangement where the deceased had swapped some capital investment for an income) this is not seen as part of the estate

• A 20% allowance is made against the value of the deceased's home if at their death it was also the home of the deceased's spouse, civil partner or dependant child

• If a surviving spouse is temporarily re-lodged at the expense of the heirs they may offset the rental costs for a year

• Listed historic monuments are exempt under conditions

• Under certain conditions there are partial exemptions for forests, farmland, sole trader firms and certain company shares

The tax rate between unrelated people is 60% and the tax-free band is just €1,594. This can cause problems, unless protective measures are taken, between couples living together without marriage or civil partnership or, in the case of stepchildren (see here about possible changes to this).

As mentioned, lifetime gifts are taxed in a similar way but there are benefits to making these such as an exemption for cash gifts for children and grandchildren (see here). 

Although gifts transferred without legal formalities are difficult for the authorities to detect, they must be declared to be officially exempted.

When someone dies, an inventory and valuation of the estate must be prepared by the notaire to support the declaration to the tax authorities, also prepared by the notaire.

If real estate is involved, the authorities usually accept the value of contents to be a fixed sum of 5% of the property value.

The inheritance duty declaration is submitted to the tax authority by the notaire after signature by the beneficiaries.

Once it is accepted the notaire pays the tax out of the estate and withholds it from the sums distributed. In the case of non-cash assets, the beneficiaries pay the tax themselves.

If the valuation is not accepted, a discussion with the tax authorities follows and, unless a settlement is reached, litigation begins. (The tax office can contest a declared value until three years after the declaration of the inheritance.) 

Tax has to be paid, to avoid penalties, within six months of the death if the person died in Metropolitan France or 12 months in other cases.

The tax is paid at the time of declaration of the inheritance. It can be paid in cash, by cheque or, with agreement, in other ways, such as with works of art. It is possible to arrange to pay in instalments, with interest applied six-monthly on any amount not paid in the first six months at a set interest rate (currently 2.3%).

This rate is related to the average rate used by banks for mortgages in the last quarter before the year in question, reduced by a third). The time available to pay is one year, in a maximum of three instalments or three years if the estate is more than 50% 'non-liquid assets', with a maximum seven instalments.

Paying in instalments is called paiement fractionné. It is also possible to delay payment of inheritance tax if you inherited the nue-propriété of a home (paiement différé), though the same interest is also applied. 

In this case interest is paid annually on the value of the nue-propriété.

Alternatively the heirs may opt to have no interest payments but to pay inheritance tax in full on the complete value of the property, once they come into full ownership. The choice of this option is irrevocable.