Inheritance tax is a topic that often catches expats by surprise. France is known for its complex inheritance rules, and when you add cross-border living to the equation, it becomes even more complicated. In addition to the intricate inheritance rules, French inheritance tax laws and inheritance laws for expats can be particularly challenging to navigate. Whether you own property in France, have children living abroad, or plan to leave assets to non-resident beneficiaries, it is vital to understand how French inheritance tax affects expats.

This guide explains the essentials of inheritance tax in France, how it applies to expats, and the options available to structure your estate efficiently. At Harrison Brook, we are financial advisers with expertise in cross-border planning, and we work closely with qualified tax advisers to ensure our clients receive the most accurate and compliant solutions. Please note that we do not provide direct tax advice; clients should seek tax advice from qualified professionals for specific matters related to inheritance tax.

Introduction to French Inheritance Tax

French inheritance tax, also known as French succession tax or droits de succession, is a central part of the French inheritance tax system and a key consideration for anyone with assets in France. Unlike the more flexible systems found in common law countries, French inheritance law is highly structured and prioritizes the rights of children over the surviving spouse. This means that, under French succession tax rules, children are entitled to a significant share of the estate, and the surviving spouse may not have the same level of protection as in other jurisdictions.

The French inheritance tax system applies to the transfer of assets upon death or through gifts made during a person’s lifetime. Each beneficiary is responsible for paying inheritance tax based on the value of what they receive and their relationship to the deceased or donor. Understanding how French inheritance tax works is essential for effective estate planning, especially for expats and those with cross-border families. By familiarizing yourself with the rules of French inheritance and succession tax, you can make informed decisions to protect your assets and ensure your wishes are respected.

Do foreigners pay inheritance tax in France?

Yes, foreigners can be subject to inheritance tax in France. The French system is primarily based on two factors: the residence of the deceased and the location of the assets. If you are resident in France at the time of death, your worldwide estate may fall under French inheritance tax. If you are a non-resident, French tax authorities still claim inheritance tax on French assets, such as property and assets located in France, including a holiday home. French inheritance taxes apply to these French assets even if the beneficiary is not a French resident.

Inheritance tax allowances and rates vary depending on the relationship between the deceased and the beneficiary. Spouses and civil partners are exempt, but children, parents, and more distant relatives face progressive rates. Friends and non-relatives can pay rates as high as 60 per cent. The tax implications differ for each type of beneficiary and depend on whether the assets are located in France or abroad, making it important to understand how French inheritance taxes may affect your estate planning.

Do you pay inheritance tax if you live abroad?

Living abroad does not necessarily exempt you from French inheritance tax. The rules depend on several factors, such as your last place of tax residence, your nationality, and whether France has a tax treaty with the country you live in.

For example, if your children inherit French property while living overseas, they may be liable for French inheritance tax. In some cases, double taxation treaties can help reduce exposure, but not all countries have them in place with France. For UK expats with assets in both countries, it is important to understand the differences between French inheritance tax and UK inheritance tax, as each system has its own rules and liabilities.

It is also important to note that French inheritance law includes strict rules about reserved heirs. The amount of tax depends on the relationship to the deceased, the value of the estate, and the relevant succession taxes. Children are legally entitled to a minimum share of the estate, regardless of your will or the country in which your heirs reside.

How to avoid French inheritance tax from parents

Parents often wish to transfer wealth to their children in the most efficient way possible. In France, one way to reduce inheritance tax is through lifetime gifts, known as donations. Each child can receive €100,000 tax-free from each parent every fifteen years, and children benefit from high tax exemptions compared to other heirs. However, gift tax applies to donations made during a person’s lifetime, so it is important to consider both the timing and amount of gifts. Careful planning using these allowances can significantly reduce the tax burden on the estate.

Some expats also use life assurance policies such as assurance vie. This structure allows you to pass on assets outside of the estate, often with preferential tax treatment. An assurance vie can be particularly attractive for expats, as it provides flexibility in choosing beneficiaries and can help reduce overall exposure to inheritance tax. With proper estate plan strategies, certain beneficiaries may even inherit tax free through these structures.

As financial advisers, we guide clients on the investment and planning side of structures like assurance vie, while working alongside tax advisers to make sure the tax treatment is correctly managed.

Do non-residents have to pay inheritance tax in France?

Yes, non-residents may still face inheritance tax in France if they inherit property or assets located within the country. The deceased’s estate, which includes all assets and property left by the individual, is subject to French inheritance tax. For example, if you are a British national who lives outside France but inherit a French holiday home, inheritance tax will apply.

The thresholds and allowances are the same as for French residents. The tax-free allowance between parents and children is €100,000, and the rates then rise progressively. For friends, distant relatives, and other beneficiaries, a flat tax rate applies after a much lower allowance. However, without careful planning, non-residents may be exposed to both French and home country inheritance taxes.

Legal representatives may be required to coordinate the inheritance process for non-resident beneficiaries.

Key thresholds and allowances in French inheritance tax

Understanding the main thresholds is essential for estate planning. Inheritance tax in France is calculated using progressive tax bands, which apply different rates to portions of the inheritance above the tax allowance for each beneficiary:

• Spouses and PACS partners: fully exempt from inheritance tax.
• Children: €100,000 tax allowance per parent, renewed every 15 years. For example, if an estate is split between two children, each benefits from their own allowance, potentially reducing the taxable amount. For families with three or more children, careful succession planning is important to ensure fair and tax-efficient distribution, as each child receives their own allowance and the estate is divided accordingly.
• Siblings: €15,932 tax allowance.
• Nephews and nieces: €7,967 tax allowance. For relatives up to the fourth degree of kinship (such as great-great grandchildren, nieces, nephews, and first cousins), a flat inheritance tax rate of 55% applies.
• Others (including friends): €1,594 tax allowance, with tax rates of up to 60 per cent.

These tax allowances apply per beneficiary, which means that splitting an estate between multiple children—such as two children or three or more children—can reduce the overall tax bill by maximizing the use of each individual’s allowance and taking advantage of the progressive tax bands.

French Inheritance Tax Rates

French inheritance tax rates are progressive and depend on both the value of the inheritance and the relationship between the deceased and the beneficiary. The French inheritance tax system provides a tax-free allowance for each beneficiary, with the applicable tax rate increasing as the amount inherited rises above these thresholds.

For direct descendants, such as children, the tax-free allowance is €100,000 per parent, per child. Any amount inherited above this allowance is subject to French inheritance tax rates that start at 5% and increase in bands up to 45%. For siblings, the tax-free allowance is €15,932, with progressive tax rates applied to amounts above this threshold. Nephews and nieces benefit from a €7,967 tax-free allowance, and inheritances above this are taxed at progressive rates.

For unrelated beneficiaries or concubines, the tax-free allowance is just €1,594, and any inheritance above this amount is taxed at a much higher applicable tax rate, reaching up to 60%. These inheritance tax rates and allowances make it essential to plan ahead, as the tax liability can vary significantly depending on the family relationship and the value of the assets involved.

Double Tax Treaty and Its Implications

The double tax treaty between the UK and France plays a crucial role in managing French inheritance tax for individuals with ties to both countries. This treaty is designed to prevent double taxation and fiscal evasion, ensuring that assets are not taxed twice in both jurisdictions. For French residents, the treaty confirms that UK domicile is lost for inheritance tax purposes, meaning French inheritance tax applies to worldwide assets.

Under the double tax treaty, tax liabilities are coordinated so that tax benefits, such as the tax-free allowance, are applied correctly and fairly. This helps to minimize the risk of double taxation and ensures that beneficiaries do not pay more inheritance tax than necessary. Understanding the implications of the double tax treaty is essential for anyone with assets in both the UK and France, as it can have a significant impact on your overall tax liability and the tax-free status of certain assets. Proper planning and professional advice are key to making the most of the tax benefits available and ensuring compliance with both French and UK tax laws.

European Succession Regulation and Its Impact

The European Succession Regulation, also known as EU Regulation No 650/2012, has brought significant changes to estate planning for expats in France. This regulation allows individuals to choose the law of their country of nationality to govern the succession of their estate, simply by stating this preference in their will. For example, a British expat living in France can opt for UK succession law, which may allow them to avoid the forced heirship rules of French inheritance law.

However, it is important to note that while the European Succession Regulation affects who can inherit your assets, it does not change the way French inheritance tax is applied. French inheritance tax still applies if the deceased was a French resident or owned French property, regardless of the law chosen for succession. This means that, even if you use the regulation to bypass forced heirship, your beneficiaries may still face French inheritance tax on your estate. For British expats and others with cross-border ties, understanding the distinction between succession law and inheritance tax is vital for effective estate planning.

Assurance Vie and Its Benefits

Assurance Vie is a uniquely French financial product that serves as both a savings vehicle and a powerful inheritance planning tool. These assurance vie policies offer a wide range of investment options, including mutual funds, stocks, and structured products, allowing you to tailor your investments to your personal financial goals. One of the key advantages of assurance vie is its flexibility in cross-border inheritance planning, as you can name any beneficiary you choose—even those not recognized under French inheritance law.

For inheritance purposes, funds held in assurance vie are considered outside the deceased’s estate, which means they are not subject to forced heirship rules. This allows you to pass on assets to non-relatives or distant family members with greater freedom. Assurance vie also provides favorable tax treatment for beneficiaries, often resulting in significant inheritance tax benefits and reducing potential inheritance tax liability. By leveraging assurance vie policies, you can optimize inheritance outcomes, shelter financial assets from inheritance tax, and ensure efficient wealth transfer to your chosen beneficiaries. For expats and those with complex family situations, assurance vie is an essential tool for inheritance planning under French law.

Practical considerations for expats

1. Cross-border estates: If you hold assets in multiple countries, you may face inheritance tax in more than one jurisdiction. International estate planning is essential to avoid double taxation and to understand how French succession law and French succession laws will impact the distribution of your assets.
2. Choice of law: Under EU regulations, you may be able to choose the law of your nationality to govern your estate. However, this does not exempt you from French inheritance tax.
3. Use of trusts: Traditional Anglo-Saxon trusts are not widely recognised in France and may attract punitive tax treatment. Alternative structures such as assurance vie are usually more suitable, offering favourable tax treatment and tax efficiency for estate planning purposes.
4. Debt and mortgages: Outstanding debts on French property may reduce the taxable estate, but they must be properly documented. It is important to consider the interests of surviving children and the surviving partner when planning your estate.

Given the complexity of cross-border inheritance and French succession laws, it is highly recommended to seek professional guidance to ensure your estate is structured efficiently and in compliance with current regulations.

Common strategies to reduce French inheritance tax

• Lifetime gifts: Using the fifteen-year allowances strategically.
• Assurance vie: An assurance vie policy is a flexible investment wrapper that can be used as a strategic tool for inheritance tax planning. It offers inheritance advantages, including tax-free roll-up of funds, reduced tax rates on withdrawals, and favorable inheritance tax treatment.
• Splitting ownership: Structuring property ownership in usufruit (life interest) and nue-propriété (bare ownership) can reduce taxable value.
• International planning: Coordinating between countries to avoid double taxation. It is important to consider the tax implications of cross-border estate planning, as different jurisdictions may have varying rules. The French government plays a key role in regulating inheritance tax for both residents and non-residents with assets in France.

Note: Stay updated on changes introduced by the French government, as new regulations may affect inheritance tax planning and related tax implications.

FAQs – How French Inheritance Tax Affects Expats

What is the inheritance tax rate in France? Rates range from 5 per cent to 60 per cent depending on the relationship between the deceased and the beneficiary.

Do I pay tax on a foreign inheritance? If you are resident in France, you may pay French inheritance tax on worldwide assets.

Can I inherit debt in France? Yes, heirs may inherit debts as well as assets, although they can accept an inheritance under benefit of inventory to limit liability. Legal representatives play a key role in managing the deceased’s estate and ensuring all debts and assets are properly handled.

How can I reduce inheritance tax in France? Having a comprehensive estate plan is essential for reducing inheritance tax. Proper estate planning can help control inheritance outcomes, reduce taxes, and ensure beneficiaries are correctly designated.

What is the seven-year gift rule? In France, gifts are reset every fifteen years, not seven as in the UK. After this period, new allowances become available.

Is there inheritance tax between spouses in France? No, spouses and PACS partners are exempt.

What is usufruit in France? It refers to the right to use a property and enjoy income from it, while the ownership is held separately.

For complex inheritance tax matters, especially those involving cross-border assets or Assurance Vie, it is strongly recommended to seek professional advice to ensure compliance and optimal outcomes.

Call to Action

Navigating French inheritance tax as an expat is complex, but planning ahead can save your family significant stress and cost. At Harrison Brook, we are financial advisers dedicated to helping expats structure their wealth effectively. We work closely with tax advisers to provide clear, coordinated solutions that meet both financial planning and tax compliance needs.

Contact us today for a free consultation and start planning your estate with confidence.