Guide to French Inheritance Laws and Taxes
3. French Inheritance Tax
French inheritance tax is called the droits de succession.
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, inheritance planning to minimise liability to French inheritance tax for children and other inheritors remains something all owners of French property need to consider.
In this chapter we consider who is liable, the process of making a inheritance declaration and the taxes that may be payable.
- Resident or Non-Resident
- How to Make a Declaration
- Calculation of Tax Liability
- 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 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:
- If it is considered the deceased had their main home in France;
- If the deceased carried on a professional activity in France, whether self-employed or as an employee;
- 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.
Where the deceased is not resident in France, 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.
Accordingly, 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.
Under the double taxation treaty between the UK and France, the UK authorities will grant a tax credit or refund paid on the property, although your solicitor or tax advisor will need to make a claim. Only your French real estate will be included in the valuation for liability to the tax in France. The tax treaty remains unaffected by Brexit.
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. The six-year period need not be continuous.
This provision is meant to exclude from liability to inheritance tax in France those who may have been temporarily resident in France (such as a business owner or a detached worker), but who are ordinarily non-resident.
If they are resident, then any assets, wherever located, is subject to taxation 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.
As we have stated, 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 inheritance tax threshold no liability arises. The current allowance (2023) is £325,000 per person. In addition, in the UK there is an additional principal residence nil rate band of €175,000 meaning the effective allowance is €500,000.
You can read more in The Double Taxation Relief (Estate Duty) (France) Order 1963
Next: How to Make a Declaration
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