4.8. Mortgage

Although a mortgage on your French property will have no impact on French inheritance rights, it may be possible to reduce liability to inheritance tax.

This is because, with a mortgage on your home, or other property in France, the outstanding debt is offset against the value of the property.

In addition, with the recent virtual abolition of inheritance tax between married couples and those in a French civil partership, the value of a mortgage for this purpose is going to be restricted to those outside of these relationships, or those with substantial wealth.

If you fall into one of these categories, then one strategy to reduce inheritance tax liability might be to retain the capital released from selling your current home, and then buy or improve your French property with a mortgage.

Alternatively, instead of funding improvements to your French home from cash resources, you could take out a mortgage to fund the work.

The mortgage repayments would be met from your current income (pension, salary, investments) whilst your retained capital would be kept in a savings account and regular withdrawals used to fund your revenue requirements.

This is because, even though the value of the fixed assets will be reduced by the level of the debt, if there are cash resources still available on death, then these will be taken into consideration for the purposes of French inheritance tax.

In addition, if the cash released by a secured loan is gifted to potential inheritors, then this will also form part of the inheritance calculation, if made within six years prior to death.

The longer the debt has been in existence, the less it is likely that the cash resources that were released will be a factor in the inheritance tax calculation. So it might pay you to not leave such action too late in your life.

Clearly, with this option you will also need to weigh the net cost of capital against your potential inheritance tax liabilities.

You can read more about mortgages in our Guide to French Mortages.