French inheritance tax can be high, especially for those who are not close relatives. But there are ways to avoid or lower it. Here is an overview of considerations, including how much is due, and how you can plan ahead to lower your bill
There are two important and separate aspects to inheritance matters in France:
Inheritance law, which relates to who you can leave your property to, and
Inheritance tax, which concerns how much they will pay.
When it comes to inheritance tax, known in France as droits de succession, this can be at very different rates, from nothing to 60%, depending on allowances and tax rates which vary according to your family relationship to the person you are leaving property to.
The two aspects both need to be borne in mind, especially if you are a resident of France, whereas bricks and mortar property in France is the main concern if you are non-resident.
Regarding inheritance law, the default rule is that French real estate and worldwide ‘moveable assets’ (valuables, shares, money…), and even to some extent foreign real estate, are subject to French rules (see our help guide to Inheritance Law and Wills in France for further detail on this). Non-residents are not concerned.
The alternative, which suits some more complex family situations, is to make a will opting for the law of the country of your nationality to apply to your estate instead of French inheritance law.
What are the biggest differences between France's inheritance laws and the UK and US?
The biggest difference between France's inheritance laws and those of the UK and US is that there are strict rules to protect the inheritance rights of children as opposed to leaving money and property to whomever you wish.
Notably, children and grandchildren, and, in their absence, a surviving spouse, have reserved rights to a share of the estate.
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As for French inheritance tax, this is dictated by the status of both the person who has died and of the beneficiaries, and the legal system applying to the share-out is irrelevant.
It is paid on each person’s share, depending on the relationship, and not on the estate as a whole, as in the UK.
French tax is payable on the death of someone living in France on their worldwide assets.
For people not living in France, it is payable on assets in France at the time of the death. This mainly involves real estate but can include other assets as outlined in treaties between France and the country where the deceased lived.
The percentage of tax levied varies according to the recipient's relationship to the deceased. For example, there is 60% taxation for beneficiaries who are not close relatives or a spouse or civil partner, but a spouse pays 0% tax.
What are French inheritance tax rates and how much is tax-free?
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Once the net value of the estate has been calculated, after deductions of debts, the estate is divided into shares and each share then benefits from a non-taxable allowance depending on the beneficiary's family relationship to the deceased.
For example:
A surviving spouse, Pacs or civil partner is 100% tax-exempt under French law.
Direct heirs (ie. children or, if they have died or renounced their share, grandchildren) pay no tax on the first €100,000 and then a staggered percentage thereafter, starting at 5% up to €8,072; 10% up to €12,109; 15% up to €15,932 ; 20% up to €552,324; 30% up to €902,838; 40% up to €1,805,677 and 45% thereafter.
Grandchildren pay at the same rates, but after an allowance of only €1,594.
Siblings are exempt up to €15,932, pay at 35% up to €24,430 and 45% thereafter. However, 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.
Nephews and nieces must pay 55% over €7,967 (unless inheriting in place of a deceased or renouncing parent), and other relatives up to the fourth degree (eg. children of cousins) the same percentage after €1,594.
Everyone else must pay 60% after the same amount.
What costs can be deducted from the estate to calculate inheritance tax?
Several costs can be deducted from the estate to calculate the droits de succession.
These include examples such as:
the cost of making a will
provable debts of the deceased that exist at the date of death
medical expenses for recent care before death, less the amount reimbursed by the social security
funeral costs of up to €1,500.
What happens when someone dies?
As soon as someone dies an inventory and valuation of the estate will be prepared, usually by a notaire appointed by a relative. The notaire will also add, where applicable, the value of lifetime gifts that the deceased made in the last 15 years for purposes of calculating any tax-free allowances (but not for the gifts to be taxed again).
This will result in the masse successorale, the inheritance to be shared between those designated as heirs by law and/or a will. A notarised declaration (acte de notoriété) will then be filed to the tax authorities by the notaire.
On receipt of the tax bill, the notaire will pay the sums out of the estate. Tax must be paid within six months of the death if the person died in Metropolitan France, or 12 months otherwise.
It is possible to arrange to pay in instalments (paiement fractionné), with interest applied six-monthly on any amount not paid in the first six months at a set interest rate.
Delaying payment is also possible where someone inherits only the nue-propriété (residual ownership of the freehold) in a property and someone else holds the usufruit (lifetime use), however, interest will also be payable in this case.
Where there is no will and the estate is under €5,000, relatives can choose not to use a notaire and file declaration forms themselves.
No declaration is required where the net value of the estate is less than €3,000, or less than €50,000 if the person inheriting is the deceased's spouse, civil partner or child. However, it is always required if real estate is involved.
What about French inheritance tax on property abroad?
Specific tax treaties between France and other countries may come into play to avoid tax being paid twice.
For example, France and the UK have a specific tax treaty on inheritances, designed to avoid double taxation.
Under this treaty, UK nationals who are long-term residents of France are deemed to be domiciled in France for inheritance tax purposes, however, when a French resident leaves UK assets, tax is due in both countries but credit is given in France for any tax paid in the UK. This ensures that tax is not paid twice.
Under the tax treaty, French residents receiving an inheritance from the UK do not need to pay any French succession tax, provided the deceased was UK domiciled and there are no French assets.
The inheritance will have been subject to UK tax.
Six ways to reduce inheritance tax
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1. Take out a life insurance policy
Life insurance (assurance vie) is often used to mitigate inheritance tax.
This works because pay-outs to beneficiaries named in these are not generally considered as part of the estate for inheritance purposes. You can name stepchildren, for example, as beneficiaries of the policy, and they will avoid paying 60% inheritance tax on their pay-out.
It also allows you to leave your children, for example, more tax-free than is possible with just the inheritance tax allowances.
If the contract is taken out and the premiums paid before the age of 70, the beneficiary will be taxed on the death of the policyholder at a set rate of 20%, after a tax-free allowance of €152,500.
A higher rate is applicable for large pay-outs: 31.25% after €700,000.
This tax is applied to the whole pay-out and is taken off by the insurance company or bank if the policyholder is a French resident at the time they die.
If the policy is taken out after age 70, or further investment is made into it after that age, an allowance of €30,500 will be applied to what has been added after the age of 70, after which the normal inheritance tax rates will apply, but the tax is only applied to the amount of the capital sums that were invested and not to interest or capital gains within the policy.
These taxes do not apply if the beneficiary is a spouse or civil partner.
Note that assurance vie should not be confused with assurance décès, which is an insurance policy that pays out a tax-free lump sum to beneficiaries in the case of the policy holder’s death.
However in this case regular premiums must be paid every month, they cost more the older you become, and the policy eventually becomes void after around age 75-80.
It is therefore of limited interest as a strategy to reduce inheritance tax.
2. Consider adopting any stepchildren
Stepchildren are not blood relatives and the rate of tax applicable to unrelated beneficiaries is 60%. This problem can be solved by adopting stepchildren to create a legally recognised relationship.
Doing this will mean they become reserved heirs, along with any other children you have.
However, there are limits to this.
Under the rules of private international law, adoption is governed by the national law of the person wishing to adopt. British law limits adoption to minors, so if the person to be adopted is over 18 the procedure will not work if the person wishing to adopt is British.
Adults can be adopted by a French or dual-national person if they consent.
3. Make a gift during your lifetime
Making a gift during your lifetime can have tax advantages but be aware: Lifetime gifts that exceed permitted allowances are taxed similarly to inheritances. In this case, the tax is called droits de donation.
The allowances (and in some cases rates) for gift tax are however not exactly the same as for inheritances. French taxes are very high for either bequests or gifts made to people who are not close relatives.
Rules on donations with an international element are as follows:
Where a donor lives in France, any significant gifts, to either residents or non-residents can be subject to French gift tax; if they do not live in France then, subject to any relevant gift tax treaty (there is none between the UK and France)...
If the recipient is non-resident then only gifts of French-situated property are concerned
If the recipient is resident; gifts of property outside France are also concerned if the recipient is French-resident (unless they have been so for less than six in the last 10 years).
It is possible to make a gift to anybody but if, on your death, your estate will be dealt with under French inheritance laws, you must take into account the rights of any ‘reserved heirs’ to set portions of your property.
If the deceased leaves a greater share of their estate by lifetime gifts to someone other than their children, their heirs can contest this after the donor dies.
A key advantage for making gifts is the fact that the tax-free allowances for gifts are renewed after 15 years.
For example, each parent can give a gift of €100,000 to a child every 15 years, tax-free, before the same tax rates as for inheritance apply (see here for more rates).
On top of this it is possible every 15 years to give a specific money gift (in cash, cheque or transfer) of up to €31,865 to a child or grandchild (or nephews and nieces if none) on top of the ordinary allowance amounts.
Finally, an additional allowance of up to €159,325 can be applied to registered disabled people.
All gifts of real estate must be made by a formal deed with a notaire so they can be properly accounted for purposes of allowances and exemptions. Tax advisers also advise doing it for large gifts of money, shares, valuables etc, so everything is properly accounted for and tax paid.
Otherwise, you should note that any non-notarised gifts (beyond ordinary presents), known as ‘manual gifts’, are still meant to be declared by the recipient. In the case of someone abroad, this would usually be to the Service des impôts des particuliers non-résidents (if in doubt speak to this body and/or the donor’s tax office about the rules in your situation).
Opting to pay the tax yourself
Gift tax is payable by the recipient unless the donor opts to pay it instead.
If the donor pays the tax, this in itself is not considered to be another taxable gift, which is worth considering, and discussing with your notaire if the gift is notarised.
This is especially advantageous if you arrange to give money to cover the tax element at the same time as the rest of a money gift.
The way this is calculated involves a complex formula, but, especially when giving to those who would otherwise pay high rates of tax (unrelated people, more distant relatives…) it means you can pay out the same total amount while the recipient ends up with substantially more.
For example, if you had €100,00 in total to give to a friend, and you integrate a tax payment into this, she will end up with €62,500 instead of €40,000 if she pays the tax after receiving your gift.
4. Pass on property before you die
In France, it is possible to pass on your property in your lifetime while keeping the right to use it.
A married couple can, for example, gift the nue-propriété (residual ownership) of a property to someone while retaining the usufruit (lifetime use) until the death of the surviving spouse.
If the donor keeps the usufruit of a home then the value of the gift is reduced compared to the full value of the property. The amount of reduction depends on the age of the donor, being lesser the older they are, for example, the value is 60% of the market value if the donor is aged 61 to 70.
Tax payable by the recipient at the time of receiving a nue-propriété gift is lower than if inheriting the same property later, as the value of the gift takes into account the fact the beneficiary does not have full rights to the property.
When the usufruitier (life tenant) does die, the recipient gets full ownership of the property with no additional tax to pay.
5. Put real estate into an SCI property holding company
One way property can be owned in France is under a special kind of company, called an SCI, société civile immobilière. This can be arranged with assistance from a notaire. The ownership is then via a number of shares in the company.
With regard to inheritance planning, one benefit is that the owner/s can gift shares in the SCI to their children or other recipients, with the same benefits as mentioned above for gifts (eg. the allowances are renewed every 15 years). There is then no inheritance tax to pay on the shares when the donor dies.
For tax purposes, shares in an SCI are also subject to a lower valuation (around 10-15%) less than a portion of a home under ordinary ownership.
6. Invest in woods or forest
If you invest in woodland then only 25% of the value is subject to inheritance tax.
A convenient way to do this is by purchasing shares in a structure called a groupement foncier forestier (GFF), however, the investment must usually be for a minimum of €5,000.
A modest income (around 2-3%) is payable, from the management of the forest and sale of wood.
Glossary of terms
Les droits de succession = French inheritance law
Héritiers réservataires = heirs to a reserved amount of the estate
Quotité disponible = remaining assets given to whomever the deceased person wishes
The Connexion Inheritance Law and Wills in France Help Guide
For more information on inheritance laws and tax in France, take a look at our Inheritance Law and Wills in France Help Guide. Our 64-page booklet of information is aimed at residents and second-home owners to support them with estate planning, including the formalities to follow after a death, dependency issues, and how retirement homes work in France.
