Guide to French Inheritance Laws and Taxes
4. Inheritance Planning in France
Property Ownership Options
- Adopt a French Marriage Contract
- Enter into a French Civil Partnership
- Make a Family Inheritance Pact
- Make a Will
- Create a Trust Structure
- European Succession Law
Financial Planning Options
- Buy or Improve with a Mortgage
- Make a Gift Between Man and Wife
- Make a Gift to Children/Grandchildren
- Make a Gift to Others
- Take out Life Insurance
4.9. Buy or Improve with a 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.
However, as all French lenders normally require that life insurance is taken out to cover repayment of the mortgage in the event of your death, this would rule out this option as a viable tax avoidance strategy, unless you were able to persuade a lender to grant a mortgage without obligatory life insurance.
In addition, as there is no inheritance tax between married couples and those in a French civil parternship the value of a mortgage for this purpose is going to be restricted to those outside of these relationships.
If you are potentially liable 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 invested, either in bank savings or other investments.
In addition, if you are resident in France there are limits on the extent to which securing a loan against your home or other property can reduce inheritance tax liability.
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 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 this will also form part of the inheritance calculation if made within fifteen 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 maths (investment return against interest paid) against your potential inheritance tax liabilities.
You can read more about mortgages in our Guide to Mortgages in France.
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