3. French Inheritance Tax

Since the abolition in 2007 of French inheritance 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.

1. 3.1. Resident or Non-Resident?
2. 3.2. How to Make a Declaration
3. 3.3. Calculation of Tax Liability
4. 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.

1. 3.1.1. Resident
2. 3.1.2. Non-Resident
3. 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 the 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:

1. i. If it is considered the deceased had their main home in France;
2. ii. If the deceased carried on a professional activity in France, whether self-employed or as an employee;
3. 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.

3.1.2. Non-Resident

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.

All worldwide assets of the deceased are then liable to inheritance tax in France, although this liability is reduced by the extent to which there is a double taxation treaty in operation between France and the country of domicile, as is the case with the UK and other European countries.

In this case, liability to inheritance tax will arise both in France and in your home country, but the terms of a double taxation treaty should mean that you will get relief against tax paid in France.

Indeed, given the generous allowances in inheritance taxes in France between parents and children the liability to taxation may well be greater in your home country!

Where the beneficiary is considered to live fiscally outside of France, then only those assets located in France come within the purview of French inheritance tax.

So, if you own a second home in France, then even through you or your inheritors may not be fiscally resident in France, it will be subject to French inheritance law and taxes.

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 you do not get taxed twice on the same income, but 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 woldwide 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. The provisions of the Double Taxation Treaty also operate in relation to those assets in the UK.