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Inheritance Laws & Taxes

 French Inheritance Laws and Taxes  

There are two issues that one should consider in regard to French inheritance:

  • Restrictions. The French law on inheritance limits who you can leave your assets to and how you can bequeath them. You may not even be able to leave your assets to your wife! These limitations are discussed in more detail further down on this page.
  • Taxes. Inheritance tax in France can be very high (up to 60%). The tax rates and allowances are discussed in  French tax. Further related information is provided on this page.

Fortunately, there are steps which can be taken to avoid (or at least minimise) both problems. Furthermore, depending on your individual circumstances and wishes, they can be simple and inexpensive. However, to avoid costs and complexity, it is best to understand these and take appropriate decisions before buying property in France or moving to France. Possible actions are discussed on this page and the pages it references. Please note that this is a general overview only; professional advice which takes into account your individual circumstances would be required to determine the specific applicability of the following to your personal situation and objectives. Whichever approach you decide on, you should consider if it takes into account the following:

  • It allows you to leave your assets, both those in France and those outside of France, to whoever you choose.
  • It minimises (and ideally completely eliminates) inheritance tax.
  • It is not subject to legal challenges (see Special Notes at the bottom of this page).
  • In the event of divorce, it does not result in undue costs, complexity or legal requirements. Likewise, in the event of re-marriage.
  • It meets any personal requirements. In particular, if you opt for a marriage contract, one can choose between having assets jointly owned or individually owned (which is particularly important in the event of divorce).
 Inheritance Restrictions  

Unlike the UK, you do not have complete freedom in terms of whom you leave your French property and other assets to. French inheritance law specifies that your relatives have rights to a certain proportion of your estate. The proportion that is due to your legal relatives is known as the Reserve Legale, while the proportion that you can freely give away is known as the Quotit Disponible.

To illustrate this, consider the case where you are survived by one child. This child would be entitled to half your estate. If you had two children they would be entitled to one-third each; with three children they would be entitled to one-quarter each. If you have no children that survive you, other members of your family (e.g. surviving parents) may qualify as legal heirs and therefore are entitle to a share of your estate. This is based on the French legal principle that property should be preserved within the bloodline.

A husband or wife is not a legal heir and therefore has no legal entitlement to a share of your estate.

 Gifts and Inheritance Restrictions  

French inheritance law applies not only to assets distributed upon your death, but also to assets which you give away during your life. Therefore, you cannot avoid the Reserve Legale (see above for description) simply by giving things away before you die. Your legal heirs can challenge any gifts during your lifetime, legally demanding the share to which they are entitled.

Likewise, you cannot necessarily avoid inheritance taxes by giving items away prior to your death. From a tax perspective, gifts are treated in the same way as inheritance and taxed at the same rate.

 Avoiding Inheritance Restrictions  

There are a number of ways of avoiding French inheritance laws (legally). These include:

  • Use of the 'Communauté universelle' marital regime to avoid Reserve Legale and inheritance tax between spouses

  • Use of purchase en tontine to avoid the Reserve Legale.

  • Use of an SCI to avoid the Reserve Legale.

In France there are different types of marital regimes. One type  is “Communauté universelle avec attribution de la communauté conjoint au survivant”, in which all assets of the two spouses (with possible exception of some personal items) are considered to be jointly held. In this case, the surviving spouse would not need to pay inheritance tax on the assets as he/she is deemed to have already jointly owned them. Furthermore, as the surviving spouse already owns the assets (although jointly), the problem of Reserve Legale is avoided (unless there are children from a previous marriage). See Marriage for further information.

You can buy a property jointly (either with your spouse or with any person you choose) 'en tontine'. This effectively means that the property is purchased for the benefit of the surviving party, so that in the event of the death of the first person, the survivor is deemed to have owned the property from the outset. Incidentally, there is a similar legal structure in the UK which is also known as tontine, although in the UK it is not well known outside of certain legal specialists. The advantage of purchase en tontine is that upon the death on one person the property passes to the survivor, without any Reserve Legale issues. It has the possible advantage that, unlike the Communauté universelle discussed above, children from a previous marriage do not have any Reserve Legale rights. .However, it does not avoid inheritance tax and there is some complexity in the event of divorce.

If you are purchasing property in France, you can either purchase the property in your name, or you can have a property company set up which purchases the property. With professional advice, this is a reasonably standard and simple procedure. The property company is known as a SCI (sociétés civiles immobilières) and it is owned by yourself so you have the same control over the property as you would if you owned the property directly. One could also use a non-French company (e.g. a UK company) or a different form of company than an SCI; this is likely inadvisable for various reasons (e.g. possible requirements to submit annual return, possible tax complications).

The SCI does not avoid inheritance tax, as under French tax law you have to pay French taxes on French property (although there is an exception to this rule, see below). However, a SCI does give you more control over who you give the property to. In particular, if you remain resident in the UK, the shares in the SCI are regarded as moveable estate and thus are subject to the laws of the country where you are permanently living (e.g. UK laws). Under UK laws you can give the shares (and thus the property) to whoever you wish, thereby avoiding the French inheritance laws that children and other family members are entitled to a share of the estate. However, there are several disadvantages to an SCI:

  • As a company, there is a certain amount of annual paperwork that must be completed. While one can delegate this to an accountant, there would still be his fees to consider.
  • If the property is let (as opposed to being lived in by yourself), it must be let unfurnished (if let furnished, it breaks one of the technical requirements of an SCI).
  • If you live in the property, it may be seen as a 'benefit in kind', which means that you could be required to pay tax on the theoretical renting value of the property. Recently, a number of UK residents owning property in France have found themselves subject to UK tax on this basis.

It is stated above that the SCI does not avoid inheritance tax. While this is generally true, it is theoretically possible to avoid inheritance taxes (and many other taxes) using an SCI in a somewhat more complicated fashion than discussed above. However, the means to achieve this are sufficiently complex and subject to different legal interpretations, that it is well beyond the scope of this general discussion. For further information, contact a specialist professional advisor.

 Special Notes  

French legal law makes a distinction between legitimate estate planning (e.g. arrangements such as the above to ensure that property is left first to the spouse and then to the children) as opposed to schemes whose purpose is to disinherit the family. The French courts have the authority to overrule the latter. Consequently, inheritance arrangements which are technically correct but contrary to the principles of French inheritance may not be able to resist legal challenges. If in doubt, you may wish to take specialist professional advice.

Inheritance and tax are closely related topics. Inheritance taxes are discussed in French tax.

 
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