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Some things you need to know about inheritance tax before buying
your property in France.
The whole subject of taxation in France is a bit of minefield.
As such, it is not really the remit of this website.
However, as property is usually such a major part of a persons'
estate, the issue of inheritance tax should be addressed before
you buy your French property. The outcome of seeking professional
advice, will be the way in which you buy here in France and will
determine how you proceed at Compromis de Vente and Acte de Vente
stages.
Naturally, as with all the content on this website, information
on this page is for your general guidance only. We feel it is essential
that you seek professional advice from recognised experts, when
dealing with such matters as taxation and making a Will.
So here goes... below we tackle some of the major issues surrounding
French Inheritance Tax, so that you can seek professional advice
with a bit of fore-knowledge.
If you are resident in France - that is, you spend more time here
than elsewhere, or have your main residence here, or your main interests
are in France- then your worldwide estate will be subject
to French inheritance tax.
If you are not resident in France, French Inheritance Tax is still
payable by your beneficiaries, on any immovable assets located in
France (i.e property).
French inheritance tax is not deducted from your estate, but payable
(after deducting allowances - see below)
by your beneficiaries.
The amount of tax payable by beneficiaries of your French taxable
estate (for the purposes of this information page - the value of
your French property) will depend on a number of factors - the inherited
amount, the relationship between the deceased & the beneficiary,
the number of children.
For joint property ownership, differences also arise depending
on whether you purchase your property with your spouse/partner under
Separate ownership (en indivision) or Joint ownership (en
tontine).
It is essential that you fully understand the implications of the
different ways in which you can elect to purchase property in France
and that you make that decision before arriving at the Notaire's
office to sign the Acte de Vente.
Obviously, how your assets are divided after your death will have
some bearing upon how you elect to purchase your French Property.
Unlike in the UK, where you can pretty much leave your assets to
whoever you please, things are very different in France and who
benefits from your estate and the proportion of your estate they
must be left are enshrined in Law.
Before deciding upon how to purchase your house in France, therefore,
it is first worth considering the main factors governing the taxation
and division of your property after death. This is a very complex
issue and you should seek professional advice before buying your
French Property. As a rough guide, we outline the main issues in
simplified form below:
Your Will - Quite simply put, if you own a French
property - make a French Will. Only in this way will you be able
to provide properly for your beneficiaries, especially your spouse.
For your French assets will be divided according to law, with two-thirds
of it going to reserved heirs (héritiers réservataires)...
no matter what you say in your Will, which could leave your spouse
financially at risk if you have bought your French property in your
name only..
Residency - Even if you die domiciled
in England, your French property (which is an immovable asset)
will be subject to the rules of French Succession Law and French
Inheritance Tax.
Beneficiaries - French Succession
Law is designed so that children automatically inherit part of
their parents’ estate. You cannot, in France, disinherit
your children. Children include adopted children, and children
of earlier relationships (in relation to the estate of their parent,
not the step-parent). Children conceived whilst one (or
both) of their parents is married to someone else, have the same
rights as other children to inherit. The ages of the children
is of no relevance.
These beneficiaries are known as héritiers réservataires
Legal Reserve - réserve
légale - The rules relating to the legal reserve
and the portion of a French Estate on death which must be left
to the children on death are as follows:
- If there is only one child - one half of the estate
- If there are two children - two thirds to be shared equally
- If there are three or more children - three quarters to be
shared equally
Spouses are now protected to a certain extent, but other relatives
are not. For instance, if there are no children, then your spouse
is able to inherit the property in preference to the deceased's'
parents as was the case previously.
If you have no surviving spouse or children (descendants), then
your ascendants will inherit - (parents, grandparents). Along
with children, these are known as reserved beneficiaries - héritiers
réservataires and they have an absolute right to inherit
in France.
The French Civil Code imposes limits upon how much may be left
by Will to a particular person. In France, you are not free to
dispose of your estate as you wish. A proportion of your estate
must be allocated to the héritiers réservataires
. This is called the legal reserve - réserve légale
- and is calculated on the number of children. Once the reserved
portion of the Estate has been calculated, the remaining portion
is freely disposable to any other person according to your (French)
will.
As far as we have been able to ascertain, as the law stands
now, the inheritance of a spouse (and therefore, their liability
to French Inheritance tax), is governed by the following:
- A husband or wife is entitled to a minimum ¼ of the property
of the deceased spouse, be the property jointly owned or in the
deceased spouse’s sole name
- If the couple have children only from their marriage, the surviving
spouse has a choice between ¼ of the property owned by
the deceased spouse or the ‘usufruit’ (the ‘usufruit’
is a life interest entitling the survivor to exclusive possession
of the property)
- If the couple have children from previous marriages or relationships,
the spouse is only entitled to take ¼ of the property and
cannot opt for the ‘usufruit’
- If the couple do not have children (or grandchildren if the
children are no longer alive), the surviving spouse is entitled
to ½ of the property owned by the other if both parents
of the deceased are still alive or 3/4s if there is only one
- If the deceased does not leave children, grandchildren or parents,
the surviving spouse will inherit the property.
It should be noted, that...
- The surviving spouse does not become a ‘reservataire’ or ‘forced
heir’ in the same way that children or parents are
- As a result, it is possible to limit the rights of a surviving
spouse by will to the minimum ¼. For example, if the deceased
spouse does not leave any children, grandchildren or parents then
the spouse could specify in a will that the survivor is only to
receive ¼ of the property and the rest is to devolve elsewhere
- When the law changed in 2001, it provided a minimum protection.
Husband and wife remain free to make separate provision by way
of gift, will or marriage contract in order to offer each other
greater protection
- How you proceed with your purchase at Acte de Vente, is crucial
to the ultimate inheritance outcome.
It is important to address these issues prior to finalising
a French property purchase if you wish for greater security than
the new legal minimum - you are urged to seek proper advice from
experts.
Exemptions - The following amounts
are (currently) not taxable:
- Spouse - Transfers between husband and wife are now free from
inheritance tax as in the UK rules.
- Children - €150,000
- Brothers and Sisters - €15,000
- Nephews and Nieces - €7,500
Each partner owns a half (or other percentage) of the property.
On the death of one spouse, their share of the property devolves
according to French succession law. In other words, the protected
heirs (children) have rights over and above the surviving spouse
against the deceased's share.
Case Study - This can get complicated, especially where
children of both spouses are concerned so, probably, the best
way to illustrate inheritance issues of en indivsion, is
by using a case study. So here goes....
You are married and buy your property in Joint Names - en indivision
- with you and your wife each holding a share (equal or not, as
the case may be). You and your (present) wife have a child.
Now suppose that you had been married before and had three children
from that marriage. You die, but in your (French) will, you leave
your immovable French assets (your share of your French property)
to your present wife. Trouble is, French inheritance law automatically
overrides your will, to the extent that your wife will discover
that as the property you share was held in joint names en indivision,
your four children (three from your previous life plus your child
with your present wife) will automatically inherit three-quarters
of your share of the property and your wife only one-quarter.
She will, of course, still own her own existing share as detailed
in the en division deed.
So, in this case study, your wife will own five eighths of your
jointly owned property, with the rest owned by your child PLUS
the children of your previous marriage. Hopefully, all will get
on and your wife and child can enjoy the property as you intended
originally intended in your will, albeit with a reduced ownership.
However, beware... under French law, any person owning a part
share en indivision can force a sale on the other part owners,
or ask to be bought out.
Usufruit - How can your surviving
wife protect herself and child against being forced out of the
French home you created together, by your children forcing a sale?
It gets messy, but she could elect to take a life interest (usufruit)
over the whole property instead of or in addition to owning the
inherited quarter of your share of the property. In so doing,
she prevents the children from selling against her will because
the French Civil Code states that the court may not at the request
of the remaindermen (the children in this case history)
sell the freehold of a property charged with a life tenancy against
the wishes of the life tenant.... your surviving wife.
Of course, if the property had been bought in the first place,
en tontine, the above situation of forced sale could not arise...
If a property is owned en tontine the entire property will pass
to the survivor, as if it were owned in the survivor's sole name
from the moment of purchase.
If a couple had, say, two children each from previous relationships,
the children of the first to die would receive nothing on the death
of their parent, the property passing to the survivor. So far so
good (for the survivor).
However, on that surviving spouse's ultimate death, that person's
two children would take at least two-thirds of the property. Only
the remaining one-third could pass to the children of the first
to die, by virtue of a French Will, however this would not be beneficial
for inheritance tax purposes. Since they are not direct descendants
of the second spouse to die, there are no protected succession rights
- these children are not "héritiers réservataires".
Furthermore they will pay very high rates of inheritance tax on
anything which they inherit from their step-parent, who is a "stranger
in blood" to them (i.e. not a blood relative).
So, to sum-up, when children eventually inherit property that was
bought by their parents en
tontine, on the death of the second spouse the children of that
spouse will inherit. If they are children of both spouses they will,
in effect, have "lost out" as they will receive their
tax-free allowance (abattement) only in the estate of the
second parent to die instead of receiving an allowance in the estate
of each parent. The situation is not the same with an unmarried
couple: while the tontine would still work to pass the property
to the survivor, the inheritance tax position would not be as for
a surviving spouse.
Finally, If there is a large difference in the ages of the parties
to the en tontine, (or if there are other reasons whereby
one party has a reduced life expectancy, or if the parties contribute
unequal shares of the purchase price), the French tax authorities
might try to classify the tontine as a gift and then apply taxes
under the heading of Lifetime Gifts
Lifetime Gifts - For the purposes of calculating the disposable
and reserved portions, all gifts can be added back into the estate
regardless of how long before death the gifts were made, and regardless
of the intention of the gifts. Having calculated the reserved
portion, if the value of the estate is inadequate, then a clawback
claim can be made against the gifts. The claim is made against
the most recent gift first, and so on. Gifts could include gifts
made into trust. In other words, gifts made years before the donor
dies could be reclaimed under French law.
The situation is different with an unmarried couple: while the en
tontine would still work to pass the property to the survivor,
the inheritance tax position would not be as or a surviving spouse.
In this case, on the first death, the deceased's share of the property
due to the survivor, would pass to them in accordance with the law
on gifts to non-relatives. At present, this means that the survivor
would pay inheritance taxes at a rate of 60% with a tax-free allowance
of just €1,500 on their inherited share.
As we stated at the beginning of this page, the whole subject
of taxation in France is a bit of minefield. As such, it is not
really the remit of this website.
As with all the content on this website, information on this
page is for your general guidance only. We feel it is essential
that you seek professional advice from recognised experts, when
dealing with such matters as taxation and making a Will.
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