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French Inheritance
Laws and Taxes |
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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).
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Inheritance
Restrictions |
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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.
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Gifts
and Inheritance Restrictions |
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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.
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Avoiding
Inheritance Restrictions |
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There are a number of ways of avoiding French inheritance
laws (legally). These include:
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Use of the 'Communauté
universelle' marital regime to avoid Reserve Legale and
inheritance tax between spouses
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Use of purchase en tontine to avoid the Reserve Legale.
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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.
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Special
Notes |
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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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