Inheritance tax rates and avoiding penalties

Inheritance tax

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 treaties allow that most forms of US-situated assets received from a US 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.

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 recognized 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.

Inheritance tax rates

Tax rates are the same as for inheritance, apart from for spouses/civil partners in which case the rates are:

• Less than €8,072 = 5%; 

• from €8,072 to €15,932 = 10%; 

• then to €31,865 = 15%;

• then to €552,324 = 20%; 

• then to €902,838 = 30%;

• then to €1,805,677 = 40%; 

• and then above this = 45%.

A tool which may help with inheritance planning issues is the Patrim database, an official tax office mechanism for estimating real estate values.

If you have an account on the tax website impots.gouv.fr this is accessible via your personal space.

This is accessible to anyone who has a French tax declaration to make.

Set up by the central tax authorities, it uses tax office data related to recent sales of private residences and can help you estimate the value of your home by seeing what comparable ones sold for recently.

You are asked to enter certain details such as the type of home (house or flat), floor space in square metres, location etc. It will provide a list of sales in the geographical area and time period that you specify.

The tax authorities state however that using Patrim does not dispense you from taking into account relevant individual factors concerning your own home.

Patrim is not available for properties situated in Alsace, Moselle or Mayotte. 

Paying inheritance tax

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 installments, 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 installments or three years if the estate is more than 50% 'non-liquid assets', with a maximum seven installments.

Paying in installments 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.