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French inheritance tax

French inheritance tax laws are complex and have recently been subject to change. Most European countries have ratified the European succession Law and Monaco has now decided to create its own international rules to match the rest of Europe. As a result, civil law will no longer be an issue for an English national. From now on, they will always be able to apply English law to their assets wherever they are located. 

European countries have not done anything to harmonise the tax system throughout the European Union. As a result, some assets, mainly immovable, will remain governed by the tax legislation where they are situated.

Inheritance Tax In France

Article 750 ter of the CGI defines the situations in which a succession or a donation is taxable in France. French tax is thus due in the following cases:

The deceased or the donor is domiciled in France

In this case, inheritance and gift taxes apply to all property (inherited or donated) in France and/or abroad (CGI, Article 750 ter, 1°). The scope of French succession rights/donations is, therefore, absolute. It includes all the property of which the deceased was the owner and all the property given, whether in or outside France, and movable or immovable. 

Applying Article 750b (1) of the CGI potentially creates a risk of double taxation. This is when the same property is taxed initially in the state of domicile of the deceased/donor and then taxed by the state where the property is situated. To avoid this, French internal law provides a tax credit mechanism for foreign tax in Article 784 A of the CGI. However, it is limited to the donation/estate duties paid abroad on foreign property. The liability for tax paid abroad is also limited to the amount of tax payable in France on the same property.

The deceased or the donor is living outside of France

Provided that the heir/legatee or the donee is domiciled in France and has been there for at least 6 years in the last ten years, inheritance/gift taxes will apply to the whole of the goods to be received, if located in France and/or abroad (CGI, Article 750 ter, 3°). Article 784 A of the CGI will also apply to avoid double taxation.

The deceased or the donor and the heir/legatee/donee are domiciled outside of France

If the succession/donation relates to French property or is situated in France, then the inheritance/gift tax would apply to such property (CGI, Article 750 ter, 2°). French property, or property situated in France, is comprehensively understood in Article 750 ter, 2° of the CGI. It is not only buildings owned in France but also movable property with a material base in France.

The following are also included in this law:

  • Shares in predominantly real estate companies in France  
  • Claims against a French debtor (a current account of a partner in an SCI, for example, or a sum of money in a French bank)  
  • Securities issued by a French company (even on deposit in a securities portfolio located in a foreign bank). 

Rules Regarding French Real Estate

Real estate located in France is taxable in France, whether directly or indirectly held by a French or foreign company or companies. Some tax allowances are available to the beneficiaries and in connection with the nature of the assets they receive. Individuals can transfer the equivalent of the tax-free threshold every 15 years under French Inheritance Law. The following rates would give an idea of the level of taxes levied on the beneficiaries:

  • The surviving spouse benefits from an exemption of inheritance tax as of 23rd August 2007
  • The children of the deceased benefit from a tax-free inheritance threshold of 100.000€

The rates after the deduction of the threshold are as follows:

  • 5% up to 8.062€ 
  • 10% from 8.072 € to 12.109€ 
  • 15% from 12.109 € to 15.932€ 
  • 20% from 15.932€ to 552.324€ 
  • 30% from 552.324€ to 902.838€ 
  • 40% from 902.838€ to 1.805.677€ 
  • 45% from 1.805.677€

As of 1st January 2016, brothers and sisters of the deceased benefit from a tax-free inheritance threshold of 15.932€. The rates after the deduction of the threshold are as follows:

  • 35% up to 24.430€ 
  • 45% from 24.430€

Nieces and nephews of the deceased can benefit from a tax-free inheritance threshold of  7.967€, and non-blood relatives of the deceased from a threshold of 1.594€. After the threshold deduction, the rate is 55% for nieces and nephews and 60% for non-blood relatives.

French Civil & Tax Codes

There is a French civil and tax code system permitting a person to give his personal or real estate to his beneficiaries and retain a life interest during his lifetime. This code allows a person to anticipate their estate planning by giving some of their assets to beneficiaries while keeping the right to use the asset until their death and generate an income from letting the assets. Life interest/bare ownership is calculated upon a scale resulting from Article 669 I of the French Tax Code. It determines the value of each right for tax purposes, whether inheritance tax, capital gain tax, or wealth tax. 

The scale covers all ages and bases the portion of the estate they retain on their age. The system in place is as follows:

  • Less than 21 years old - 90 % is retained, and 10 % is given to any beneficiaries. 
  • Less than 31 years old - 80 % is retained, and 20 % is given to any beneficiaries. 
  • Less than 41 years old - 70 % is retained, and 30 % is given to any beneficiaries. 
  • Less than 51 years old - 60 % is retained, and 40 % is given to any beneficiaries. 
  • Less than 61 years old - 50 % is retained, and 50 % is given to any beneficiaries. 
  • Less than 71 years old - 40 % is retained, and 60 % is given to any beneficiaries. 
  • Less than 81 years old - 30 % is retained, and 70 % is given to any beneficiaries. 
  • Less than 91 years old - 20 % is retained, and 80 % is given to any beneficiaries. 
  • More than 91 years old - 10 % is retained, and 90 % is given to any beneficiaries.

International Tax Conventions

The mechanisms presented fall within the scope of French domestic law. In an international context, it is also necessary to seek a tax treaty. These have been established to avoid double taxation and allow domestic law rules to amend.

French Inheritance Tax For English Citizens

France and England signed a double tax treaty for inheritance tax purposes in 1963, which is yet to be amended. Article 4 of the convention is the most important as it sets out which assets can be taxed in France. Considering your current assets in France, all properties will be taxed under the French system. However, any boats in France will be taxed in the country where they are registered. The law of your domicile will also govern any French bank account at the time of death. The double tax treaty refers to your last permanent residence before your death.

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