3.3. Calculation of Tax Liability

1. 3.3.1. Allowances/Exemptions
2. 3.3.2. Net Assets
3. 3.3.3. Valuaton of Assets
4. 3.3.4. Rates of Taxation

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3.3.1. Allowances/Exemptions

There are various allowances and exemptions that apply before the estate if the deceased becomes liable for inheritance tax.

There are also personal allowances which vary according to the relationship of the inheritor to the deceased.

The thresholds for 2008 are as follows:

These allowances are indexed linked, so are uprated each year in line with inflation.

There are important concessions for brothers and sisters who were living under the same roof as the deceased. They escape liability to inheritance tax on the triple condition that they are either single, widowed, divorced or separated, over 50 years of age or infirm, and that they have been living with the deceased for at least the last 5 years preceeding their death.

A registered disabled person, whatever their relationship to the deceased, receives an allowance of €151,950 by reason of their disability, to which they can add any other allowance to which they may ordinarily be entitled by virtue of blood link. Thus, a disabled child is entitled to an allowance of €151,950, as well as a further €151,950 from each of their parents.

There is an allowance of 20% for the main residence of the deceased is granted, provided the property was normally occupied by the surviving spouse, and/or the children, at the time of death.

The value of a life insurance policy is ignored provided the amount received by the beneficiary exceeds €152,500. If not, inheritance tax is payable at the rate of 20%. The sum is deducted by the insurance company prior to payment being made.

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3.3.2. Net Assets

Liability for inheritance tax is on the net assets of the deceased.

Marital law in the UK, and in many other countries, normally provides that couples each own 50% of any joint assets, together with the assets owned in their own name.

The situation might be different were the couple to have a particular form of marriage contract, but, as a general rule, this does not apply to those married outside of France.

The calculation of ‘net assets’ are those remaining after deduction of any liabilities, and after deduction of tax allowances to which the inheritors will be entitled.

Moreover, as there are likely to be other inheritors, apart from the surviving spouse, the value of the assets (and therefore the potential tax liability) is spilt between all of the inheritors.

Tax is then payable by each beneficiary on a progressive scale according to the size of the estate, the number and relationship of the next of kin.

It will be necessary to declare ‘gifts’ that may have been made to inheritors within the last 6 years as these may be taken into account in determining the tax liability.

You should familiarise yourself with the law relating to gifts and gift tax, which you can read more about by in our pages on Gifts Tax.

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3.3.3. Valuation of Assets

The valuation of assets is the market valuation as at date of death of deceased, less debts, allowances and exemptions, which are detailed below.

In the case of real estate, then a valuation of the property is necessary, and is normally carried out either through the notaire or an expert appointed by them. If the property is sold shortly after death, then this will be the value used, provided the tax authority are satisfied that it has not been sold at an artificially low price.

In the case of other possessions, then the tax authority are generally prepared to accept a rate of 5% of the value of the real estate. Once again, however, it is possible for a valuation to be carried through the notaire.

The 5% rule does not apply in the case of jewellery, precious stones and works of art, although the inheritors are still permitted to give their own valuation of the goods. If there is an insurance policy in existence for the goods then the figures in the policy can be used, provided it is less than 10 years old.

Often, because of the way the inheritance is taken by the inheritors, it is necessary to value separately the reversionary interest (nue-propriéte) and the life interest (usufruit) in property.

This is done by way of a scale established by the tax authority based on the age of the usufruitier, as follows:


Table: Value of Interests

Age of Usufruitier	Value of Usufruit	Value of Nue Propriété
Less than 21 years	90%	10%
21 years to 30 years	80%	20%
31 years to 40 years	70%	30%
41years to 50 years	60%	40%
51 years to 60 years	50%	50%
61 years to 70 years	60	40%
71 years to 80 years	70%	30%
81 years to 90 years	80%	20%
91+ years	90%	10%

Thus, the value of 'life interest' in a property inherited by a surviving spouse would depend on the age of the spouse, which would in turn give a value to the 'reversionary interest' inherited by the children.

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3.3.4. Rates of Taxation

The rates of taxation that apply depend upon the nature of the relationship of the inheritor to the deceased.

The tax is applied on a ‘sliced’ basis so that each slice of the total sum is taxed at a different rate.

The rates for 2008 are as follows:


Table: Parents/Children

Taxable Amount	Tax Rate
Up to €7,699	5%
€7,699 to €11,548	10%
€11,548 to €15,195	15%
€15,195 to €526,762	20%
€526,762 to €861,053	30%
€861,053 to €1,722,105	35%
Greater than €1,722,105	40%

Brothers and sisters are taxed at the rate of 35% for sums up to €23,299, and thereafter at the rate of 45%.

Others inheritors are taxed at the rate of either 55% or 60% depending on their relationship (if any) to deceased.

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Next: Payment of Inheritance Tax