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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.
In 2011, the government increased both gift & inheritance taxes: the upper two band rates for children & parents (and for gifts to spouses) were increased by 5% to 40% and 45%. Tax-free gift allowances now only apply every 10 years rather than every 6 years (see below).
If you are a French resident and have recently received or are considering making any significant gifts or legacies - inside or outside France - please contact us to discuss the potential taxes involved and potential ways to optimise.
MAKING A WILL
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.
- 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 (if there are no children from a previous marriage)
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.
INHERITANCE TAX
French inheritance tax is paid independently by each heir. Allowances & rates depend on their relationship with the deceased.
There are no longer any inheritance taxes for legacies between spouses and PACS partners. However, please remember that lifetime gifts ARE still taxed...
The tax-free allowances and tax bands have not been increased for 2012. The rates remain as follows:
Children & parents: 159325€ allowance each (grandchildren & great grandchildren only have allowances of 1594€ for inheritance),
above which tax is paid at the following rates:
- to 8072€ 5%
- 8072 to 12109€ 10%
- 12109 to 15932€ 15%
- 15932 to 552324€ 20%
- 552324 to 902838€ 30%
- 902838 to 1805677€ 40%
- above 1805677€ 45%
Brothers & sisters: 15932€ allowance each, above which tax is paid at the following rates:
- to 24430€ 35%
- above 24430€ 45%
Nephews & nieces: 7967€ allowance each, above which the legacy is taxed at 55%
Other beneficiaries: 1594€ allowance each, above which the legacy is taxed at 60%.
(Unmarried couples must therefore be particularly careful to make appropriate plans).
GIFT TAX
There are six different legal methods for making gifts. The above mentioned rules for "héritiers réservataires" apply and in certain cases, "re-distribution" of earlier gifts can be ordered by the courts to ensure equality amongst all the children.
Specific tax-free allowances are available for lifetime gifts and are renewed every ten years. Please note you must register the gift in order to benefit from the ten-year rule.
Children : can receive 159325€ from each parent, 31865€ from each grandparent and 5310€ from each great grandparent
Spouses and PACS partners: can receive 80724€
Brothers & sisters : can receive 15932€
Nephews & nieces : can receive 7967€
In addition, tax-free cash gifts up to 31865€ can be made by family members (every 10 years) so long as the giver is less than 80 and the receiver is over 18.
Gifts beyond these allowances are taxed at the inheritance rates shown above.
NB Spouses and PACS partners ARE subject to French tax on gifts above the allowance - using the rates shown in the “children & parents” table above.
There are additional rules for gifts relating to life tenancy known in French as démembrement. The usufruitier has exclusive use of the assets during his lifetime - but on his death, the assets pass automatically (without further inheritance taxes) to the nu-propriétaire.
OPTIMISATION : HOW TO REDUCE INHERITANCE & GIFT TAX
1. Know your rights
For example, regarding lifetime gifts:
- Transfer assets to children & grandchildren within the allowance limits every 10 years.
- Ensure tax-free allowances for cash gifts from family are used before they reach 80
- 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 - Société Civile Immobilière)
- Pacte tontinier (Tontine clause)
- Démembrement (French form of life tenancy as described above).
3. Use schemes with tax incentives
The main scheme attracting significant inheritance tax benefits is the French life insurance policy (assurance vie). Each beneficiary can receive 152500€ tax-free (above which there is a tax rate of 20 or 25%) except for policies left to spouses (or PACS partners) which are entirely tax-free.
Since July 2011, beneficiaries of Assurance Vie are no-longer exempt from the 20% tax if the policyholder was non-resident in France at the date of subscription. This applies to all contracts (including those subscribed prior to July 2011).
There is clearly 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.
 C Copyright © 2012 Cabinet Gregory Tel: +33 (0)1 5320 9027
Latest modification: 15 January 2012 Email: info@cabinetgregory.com |
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