Considerations about the applicability of French inheritance laws and taxes become relevant if you become a French resident, retire in France, or purchase property in the country. You need to understand whether these laws pertain to your possessions. There are circumstances in which non-residents and foreigners may opt for their home country’s laws to govern their assets. However, some limitations might exist when it comes to the division of assets located in France under French inheritance law.
The rules of inheritance in France are rooted in the French civil code and work based on a residency system. This means that French inheritance laws apply to all individuals residing in France, irrespective of their nationality.
French inheritance laws have forced heirship rules in place designed to protect the direct line of descendants, including children, grandchildren, and parents. Historically, this has been meant to safeguard the family unit from situations where an outsider might manipulate an older individual into disinheriting their family members.
In practice, these forced heirship rules indicate that a specific portion of an individual’s estate must be allocated to the deceased’s children or spouse, regardless of any existing will. After this obligatory distribution, the remaining estate can be freely allocated as specified in a French will.
In the context of French inheritance law, children can opt to renounce their rights to an inheritance, provided this decision is made in front of two notaries. Once their parent passe away, this decision is irreversible.
The French inheritance law stipulates specific proportions of the estate to be set aside as reserves:
- If there’s one child, they inherit 1/2 of the estate.
- If there are two children, they jointly inherit 2/3 of the estate.
- If there are three or more children, they collectively inherit 3/4 of the estate.
- If there are no children, the spouse can claim 1/4 of the estate.
For a spouse to legally inherit a portion of the estate, the couple must be married at the time of death.
In cases where the couple is in an unmarried partnership, civil union, or divorced in France, the surviving partner doesn’t automatically have a legal right to a portion of the estate. However, individuals in civil partnerships have the right to continue living in the family home for up to one year after their partner’s death.
French inheritance laws become particularly intricate when it comes to pensions, with various influencing factors. The complexities increase when the deceased was receiving a pension from another EU or non-EU country.
If the deceased earned a French pension, it won’t necessarily be inherited by a spouse or ex-spouse unless they are over the age of 55 and earn an income above a certain threshold.
Given the potential high tax implications, it’s recommended to seek tax lawyers advice to avoid expensive errors.
Inheritance Tax in France
For expatriates residing in France with EU citizenship who wish for the inheritance laws of their home country to be applicable, it is necessary to specify this in a will or a separate declaration. As a general rule, these laws will apply as long as they do not conflict with local public policy.
However, EU rules do not govern the following aspects related to your inheritance :
- Inheritance taxes
- Your civil status
- The property regime of your marriage/partnership (how your property is divided upon the death of your spouse or partner)
- Issues related to companies
Once you become a French resident, all your global assets could be subjected to French inheritance law, except for real estate properties located in other countries. The reason for this exception is that foreign real estate is typically governed by the inheritance laws of the respective country where the property is located.
The rates of inheritance tax in France vary, depending on the deceased’s relationship with the heir(s).
Here are the current French inheritance tax rates and allowances
Married Couples and Civil Partners : These individuals are now exempt from paying inheritance tax in France.
Parents, Children :
- Tax-free allowance: €100,000 (re-generated every 15 years)
- 5% tax up to €8,072
- 10% on €8,072–€12,109
- 15% on €12,109–€15,932
- 20% on €15,932–€552,324
- 30% on €552,324–€902,838
- 40% on €902,838–€1,805,677
- 45% on amounts over €1,805,677
Siblings :
- Tax-free allowance : €15,932 (re-generated every 15 years)
- 35% tax up to €24,430
- 45% tax on amounts over €24,430
Other Relatives up to Fourth Degree (including Nephews and Nieces) :
- Tax-free allowance : €7,967 (re-generated every 15 years)
- 55% tax flat-rate
Distant Relatives and Other Beneficiaries :
- Tax-free allowance : €1,594 (€159,325 if disabled)
- 60% tax flat-rate
If an individual passes away without leaving a will, French rules become applicable. In such situations, the deceased’s estate is split between surviving children and the spouse in accordance with legal stipulations.
The spouse has the option to either assume complete ownership of his/her portion (minimum 1/4) or a lifetime interest (« usufruit ») in the French property, which provides the right to use the property for the duration of their life. In such scenarios, the entire estate’s ownership gets divided amongst the children that cannot benefit from the property before the spouse death.
Property Estate Tax in France
French property law assigns ownership based on the individual named on the title deeds. Therefore, after purchasing a house in France, you must register your property for it to be considered part of your estate. The entitlements of a spouse under French inheritance law are determined by the matrimonial regime adopted by the couple when they got married in France.
Apart from these inheritance restrictions in France, one can bequeath the rest of their estate to anyone of their choosing by drafting a French will. Should a minor under the age of 18 inherit property in France, the law requires that the property doesn’t carry any debts, including mortgage repayments.
Inheritance tax on real estate in France typically falls within the normal tax scale mentioned earlier.
Paying Inheritance Tax in France
Following the death of an individual, it might take some time for banks, insurance firms, and government agencies to assess the individual’s assets.
You are given a six-month window to submit a declaration to the tax authorities. However, an extension can often be granted if the deceased lived outside France. The government can then challenge the figures used in the declaration and tax calculation.
If there is a delay, it is advisable to settle the tax as soon as possible. Tax authorities might enable payments to be deferred for five to ten years, contingent on your relationship to the deceased. If over half of the inheritance consists of liquid assets (cash), the tax must be paid within a six-month timeframe.
If French inheritance law is applicable to your estate and you’re a French resident, French inheritance tax will be charged on all global assets. If you are a non-resident, the tax will only apply to assets located in France.
In some instances, this can result in double taxation where assets are subject to tax in two different countries. For this reason, France signed multiple tax treaties with many countries to prevent such double taxation. Regardless of your circumstances, it’s advisable to engage a legal and tax lawyer to navigate you through the inheritance procedure.
Minimizing Your Inheritance Tax in France
Tax-exempt gifts up to the specified tax allowance can be given once every 15 years. To exclude the gift from the giver’s estate, the 15-year period must have elapsed.
In simpler terms, if you offer someone an asset within the tax-free allowance and pass away before the 15-year period ends, it will be included in the value of your estate for French inheritance tax computations. Other tax expenses may also be incurred.
The potential to lower your inheritance tax largely depends on your specific situation and relationship to the deceased/the heirs. Therefore, it’s highly recommended to hire a competent tax lawyer to assist you and prepare your inheritance or to be informed on your legal rights as a heir.
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MFL registered lawyers remain at your disposal should you have any queries or needing assistance regarding an inheritance situation. MFL will provide you with the best lawyers to handle your situation and secure your interest.