Ways to reduce inheritance tax for hard-up son

My 44-year-old son, my only child, lives with me in France in our home. The property is worth around €200,000, which means that on my death he would have inheritance tax to pay on it of around €100,000 of it. He does not earn a lot and there will be no cash left in my estate. I have been told that if he does not pay the tax within six months he would be forced to sell the property and would effectively be homeless. What can I do to avoid this?

The law takes account of situations where the inheritance does not allow for enough liquid assets to pay tax immediately or the heirs cannot afford to do so.

At the time of your death, your son can apply to pay the tax liability in instalments. This is called paiement fractionné and in some cases it only extends for a year; however, where at least half of the estate is non-liquid assets such as real estate, art or businesses, it is up to three years.

The tax office is not obliged to accept paiement fractionné  but it may favour cases of inheritances by parents or children. The request is made at the time of declaring the inheritance and the tax office will ask for guarantees, which can be based on the inheritance itself. However, interest at a set rate is applied (based on average commercial rates for mortgages in the last quarter of the previous calendar year, reduced by one third).

If the property is put up for sale once inherited, the tax office can usually be persuaded to wait to be paid from proceeds, although there are costs that can be incurred in doing this.

Another option could be to give your son a share in the house now as a gift, while retaining the remaining share as well as lifetime use.

Lifetime gifts share the same tax allowance as inheritance (which is renewed after 15 years in this case).

What is more, property gifts where you retain lifetime use (called a gift of nue-propriété) are subject to a reduction in value for tax purposes by a percentage according to the donor’s age:

• Age 60 - 70: 40%

• Age 70 - 80: 30%

• Age 80 - 90: 20%

If you are 72, for example, you can give your son a €142,857 share in the €200,000 house while still remaining under the €100,000 tax allowance as long as you retain the right to live in it.

The calculation is as follows: 30% of €142,857 = €42,857.10 Subtract this €42,857.10 from the €142,857 gift and the gift is worth €99,999.90 for tax purposes, which is within the child’s tax allowance of €100,000.

Your son’s allowance would be restored after 15 years, allowing him to inherit your remaining share tax-free, should you live that long. This arrangement (called a donation partage) does come at a cost, however, as, apart from the notaire’s fees, there are land registry fees and stamp duty to pay.

You may wish to take advice from a financial professional who can consider the specifics of your situation.