French Inheritance and Gift Tax
This page outlines:
- Making a will
- Inheritance tax
- Gift tax
- Inheritance & gift tax optimisation
Each household's circumstances are different, and the legislation is complex. We strongly recommend obtaining advice from qualified professionals in France - and we would be glad to assist.
If you have any assets in France, you should draw up a will with assistance from a notaire.
When making a will, you must respect the
rights of certain heirs ("les héritiers réservataires"):
- your children and their descendants must inherit at least half your
estate (if 1 child), two thirds (if 2 children) or three quarters (if 3 or
more) - in equal proportions
- if there are no descendants, your parents have
the right to reclaim certain gifts. As from 2007, they no longer have the
right to a share of your estate.
- if there are no
descendants, your spouse - if not
divorced - must inherit at least one quarter
If there are descendants, you
can leave your spouse
- full ownership of the remaining estate
- or a life-time interest in the whole estate.
A key element in planning for the surviving spouse is therefore choosing the right marriage regime rather than relying on the will.
So long as the reserved heirs have their share, you can leave the remainder to whomever you wish, enabling you for example to assist a particular child, relative or friend.
French inheritance tax is paid independently by each heir. Allowances & rates depend on their relationship with the deceased.
In August 2007, the French parliament approved the elimination of all inheritance taxes for legacies between spouses and PACS partners. This follows on from the promises of Nicolas Sarkozy to eliminate IHT for 95% of the population.
In addition, the tax-free allowances and rates have been modified as follows:
Children
& parents: 151950€ allowance each
(1520€ only for grandchildren & great grandchildren),
above which tax is paid at the
following rates:
- to 7699€
5%
- 7699 to
11548€
10%
- 11548 to
15195€ 15%
- 15195 to
526760€ 20%
- 526760 to
861050€ 30%
- 861050 to 1722100€ 35%
- above 1722100€ 40%
Brothers & sisters:
15195€ allowance
each, above which tax is paid at the following rates:
- to 23299€
35%
- above 23299€
45%
Nephews & nieces: 7598€ allowance each, above which the legacy is taxed at 55%
Other
beneficiaries
: 1520€ allowance
each, above which the legacy is taxed at 60%.
(Unmarried couples must therefore be particularly careful to make appropriate
plans).
There are six different legal methods for making gifts. The above rules for "héritiers réservataires" apply and in certain cases, "re-distribution" of earlier gifts can be ordered by the courts.
Specific tax-free allowances are available for lifetime gifts and are renewed every six years.
Children : can receive
151950€ from each
parent, 30390€ from each grandparent and 5065€ from each great grandparent
Spouses
and PACS partners: can receive 76988€
Brothers & sisters : can receive
15195€
Nephews & nieces : can receive
7598€
|
Updated for the final Loi de Finances 2008 of 24th December 2007 |
Gifts beyond these allowances are taxed at
the inheritance rates shown above.
There are additional rules for gifts relating to bare ownership and life tenancy (usufruct).
OPTIMISATION : HOW TO REDUCE INHERITANCE & GIFT TAX
1. Know your rights
For example, regarding
lifetime gifts:
- Transfer assets to children and grandchildren within the allowance
limits every 6 years.
- Help family members to create a company or transfer an existing family
business.
- Other exemptions are available concerning land, historic buildings, etc
2. Share ownership of assets
Depending on the
relationship with each beneficiary,
the available legal options should be considered, for example
- Marriage regimes (Communauté universelle,
séparation des biens, etc)
- Property companies (eg SCI)
- Pacte tontinier (Tontine clause)
3. Use schemes with tax incentives
The only scheme attracting significant inheritance tax benefits is the life insurance policy (assurance vie). Each beneficiary can receive 152500€ tax-free (above which there is a flat tax rate of 20%) except for policies left to spouses which are entirely tax-free. However, there is no point in saving tax if the financial performance is poor. We regularly review the performance of appropriate schemes and can provide advice on choosing appropriate policies and funds.
We strongly recommend obtaining advice from qualified professionals in France - and we would be glad to assist.