Rupert Holderness tackles the complexities of inheritance tax and estate planning in France – so you don’t have to…
Good estate planning is about achieving the peace of mind that our affairs are in order and that, as far as possible, what we want to happen in the future will happen in the way we wish.
Estate planning in France is made far more challenging by ‘forced heirship’ succession law and inheritance tax rates of up to 60%. The regime is particularly daunting for complex family situations.
Arrangements set up in the UK are unlikely to be effective in France and may have unexpected consequences.
So if you are planning to move to France, or already live there, you will need to review your estate planning to ensure your family is protected as much as possible.
As a resident of France, any worldwide assets you give away on death or as a gift are liable to succession tax, as are assets received by you. If you are not resident, but own property there, it will be subject to this tax even if neither you nor the recipient lives there.
Tax rates and allowances vary depending on who the beneficiary is, and you need to plan accordingly.
There is no tax between spouses/PACS (civil) partners on inheritances (there is on gifts). Your children each receive a tax-free allowance of €100,000 and pay tax at progressive rates of 5% to 45%.
Stepchildren, however, are treated as non-relatives. Their allowance is a mere €1,594 and their tax rate 60%.
If you have children from a previous relationship and leave everything to your spouse, when your children inherit from them on the second death, they are treated as stepchildren. The difference in how much tax they pay compared to natural or adopted children is staggering. Taking a €400,000 inheritance as an example, a natural child would have a tax bill of €58,195, while a stepchild would pay €239,044.
These tax liabilities are without tax planning in place, which can make a considerable difference.
The tax rates for siblings, nephews, nieces etc. are between 35% and 55%, with allowances of less than €16,000.
Note that the EU succession regulation that allows you to choose UK inheritance law instead of French succession law does not apply to taxation. So be aware that if you use UK succession law to leave assets to distant or non-relatives, they face tax of up to 60%.
There are arrangements you can use in France that offer considerable succession tax savings.
They can provide other tax benefits, such as lowering your lifetime tax liabilities on your investment income and gains. Seek expert advice to ensure more of your money will go to your beneficiaries and less to the taxman, and that you use arrangements that are suitable for you and your objectives. Every family is different, so you need personalised advice and solutions.