3. French Inheritance Tax
French inheritance tax is know as the droits de succession, a strange name for a tax if ever there was one.
Since the abolition in 2007 of the tax between man and wife and those in a French civil partnership, this whole issue has become less important to international buyers.
Nevertheless, as we are all mortal, even these relationships come to an end at some point, so inheritance planning to minimise liability to French inheritance tax for children and other inheritors remains something all owners of French property need to consider.
- 3.1. Resident or Non-Resident?
- 3.2. How to Make a Declaration
- 3.3. Calculation of Tax Liability
- 3.4. Payment of Taxes
3.1. Resident in France or Non-Resident?
Liability to French inheritance tax depends, in the first instance, on the residence status of the deceased and, to a lesser extent, the beneficiary.
- 3.1.1. Resident
- 3.1.2. Non-Resident
- 3.1.3. UK Domicile
3.1.1. Resident in France
Where the deceased was resident for tax purposes in France, all worldwide assets are within the scope of French inheritance tax.
Accordingly, even though a beneficiary may not be resident in France, the whole of the estate is liable to French inheritance tax.
The deceased will be considered to have been ‘resident’ if any of the following three conditions applied:
- i. If it is considered the deceased had their main home in France;
- ii. If the deceased carried on a professional activity in France, whether self-employed or as an employee;
- iii. If the deceased had their centre of ‘economic interests’ in France e.g. investments, business.
If the deceased spent more than 183 days a year in France then will be deemed to be have been resident.
The final decision on these questions rests with the tax authorities.
Under the terms of most tax treaties between France and other countries only real estate in France is subject to French inheritance tax.
This is the case the case with the UK and other European countries.
So if you own a second home in France, even though you or your inheritors may not be fiscally resident in France, it will be subject to French inheritance law and taxes.
However, cash and other moveable property located outside of France will not be liable.
Where there is no tax treaty in place, then where the deceased was not resident for tax purposes the scope of the tax depends on whether or not the beneficiary is considered to have been resident for tax purposes in France at the time of death.
A beneficiary is considered domiciled fiscally in France if they are resident in France and have been resident for at least six years out of the last ten years preceding the death.
All worldwide assets of the deceased are then liable to inheritance tax in France.
3.1.3. UK Domicile
Despite the fact the you may relocate permanently from the UK to France, it may well be that you continue to have a liability for UK inheritance tax, as well as French inheritance tax.
A double taxation treaty that exists between the two countries will ensure that your estate is not taxed twice on the same assets.
However, if you retain 'strong links' with the UK, or if you have been in France less than three years prior to your death, it may well be deemed by the UK tax authorities that you retain UK domicile, and thereby a liability for UK inheritance tax on your worldwide assets.
In practice, if you make it clear through your actions that you have relocated permanently to France the UK authorities are unlikely to take an interest. Only if you want to play games between the French and UK tax authorities about where you have your permanent home can you expect any real difficulties.
Even if you shed your UK domicile you will still be liable for UK inheritance tax for assets that remain in the UK, although if their combined value is less than the UK IHT threshold no liability arises.
'Assets' include cash as well as real estate, although foreign currency accounts are excluded.
Next: How to Make a Declaration
Back: French Inheritance Laws