3. French Inheritance Tax
3.3. Calculation of Liability
Unlike in the United Kingdom, there is no general tax allowance against the estate for the purposes of inheritance tax.
Instead, each beneficiary is granted an allowance.
There are various allowances and exemptions that apply before the beneficiaries of the deceased becomes liable for inheritance tax.
Between husband and wife, or those in a civil partnership, there is no liability to inheritance tax.
There are also personal allowances which vary according to the relationship of the inheritor to the deceased.
The thresholds applicable in 2022 are as follows:
- Children - €100,000 each parent to each child (or child to parent).
- Brother/Sisters - €15,932 between brothers and sisters.
- Nieces/Nephews - €7,967 to nieces and nephews.
- Unrelated/Concubines - €1,594 to third parties.
Since 2012 these allowances have not been indexed linked.
President Macron is proposing to increase the allowances for inheritance tax, which you can read about at Macron Promises Increase in Inheritance Tax Allowances.
A disabled person, whatever their relationship to the deceased, receives an allowance of €159,325 by reason of their disability, to which they can add any other allowance to which they may ordinarily be entitled by virtue of blood link. Thus, a disabled child is entitled to an allowance of €159,325, as well as a further €100,000 from each of their parents.
There is an allowance of 20% for the main residence of the deceased, provided the property was normally occupied by the surviving spouse, and/or the children, at the time of death.
There are important concessions for brothers and sisters who were living under the same roof as the deceased. They escape liability to inheritance tax on the triple condition that they are either single, widowed, divorced or separated, over 50 years of age or infirm, and that they have been living with the deceased for at least the last 5 years preceding their death.
The value of a assurance vie policy is not taken into account, provided the amount received by the beneficiary does not exceed €152,500. If not, inheritance tax is payable at the rate of 20%. The sum is deducted by the insurance company prior to payment being made.
There are also substantial allowances available for the transfer of a business, which is up to 75% of the assets of the business, provided there is an engagement to run it for at least two years following the death of the owner.
3.3.2. Valuation of Assets for French Inheritance Tax
Liability for inheritance tax is on the net assets of the deceased.
Marital law in the UK, and in many other countries, normally provides that couples each own 50% of any joint assets, together with the assets owned in their own name.
Accordingly, on the death of the a spouse the net assets liable to inheritance tax would be 50% of the property they owned together (subject to any other specific arrangement made concerning ownership of assets). It is not on the whole of the property owned by them.
The situation might be different were the couple to have a particular form of marriage contract, but, as a general rule, this does not apply to those married outside of France.
The calculation of ‘net assets’ (actif net taxable) are those remaining after deduction of any liabilities.
Moreover, as there are likely to be other inheritors, apart from the surviving spouse, the value of the assets (and therefore the potential tax liability) is split between all of the inheritors.
Tax is then payable by each beneficiary on a progressive scale according to the size of the estate, the number and relationship of the next of kin.
So, inheritance tax is not calculated on the total sum but on the individual sums received by each beneficiary.
It will be necessary to declare ‘gifts’ that may have been made to inheritors within the last 15 years as these may be taken into account in determining the tax liability.
You should familiarise yourself with the law relating to gifts and gift tax, which you can read more about by in our pages on Gifts Tax.
The valuation of assets is the market valuation as at date of death of deceased, less debts, allowances and exemptions, which are detailed below.
In the case of real estate, a valuation of the property is necessary, normally carried out either through the notaire or an expert appointed by them. If the property is sold shortly after death, then this will be the value used, provided the tax authority are satisfied that it has not been sold at an artificially low price.
In the case of other possessions, then the tax authority are generally prepared to accept a rate of 5% of the value of the real estate. Once again, however, it is possible for a valuation to be carried through the notaire.
The 5% rule does not apply in the case of jewelery, precious stones and works of art, although the inheritors are still permitted to give their own valuation of the goods. If there is an insurance policy in existence for the goods then the figures in the policy can be used, provided it is less than 10 years old.
Often, because of the way the inheritance is taken by the inheritors, it is necessary to value separately the reversionary interest (nue-propriéte) and the life interest (usufruit) in property.
This is done by way of a scale established by the tax authority based on the age of the usufruitier, as follows:
Table: Value of Interests
|Age of Usufruitier||Value of Usufruit||Value of Nue Propriété|
|Less than 21 years||90%||10%|
|21 years to 30 years||80%||20%|
|31 years to 40 years||70%||30%|
|41years to 50 years||60%||40%|
|51 years to 60 years||50%||50%|
|61 years to 70 years||40%||60%|
|71 years to 80 years||30%||70%|
|81 years to 90 years||20%||80%|
Thus, the value of 'life interest' in a property inherited by a surviving spouse would depend on the age of the spouse, which would in turn give a value to the 'reversionary interest' inherited by the children.
3.3.3. Rates of French Inheritance Tax
The rates of taxation that apply depend upon the nature of the relationship of the inheritor to the deceased and the amount of the inheritance for each inheritor.
The rates of tax for 2022 are as follows:
|Taxable Amount||Tax Rate|
|Up to €8,072||5%|
|€8,072 to €12,109||10%|
|€12,109 to €15,932||15%|
|€15,932 to €552,324||20%|
|€552,324 to €902,838||30%|
|€902,838 to €1,805,677||40%|
|Greater than €1,805,677||45%|
Brothers and sisters are taxed at the rate of 35% for sums up to €24,430, and thereafter at the rate of 45%, after allowance of €15,932.
Others inheritors are taxed at the rate of either 55% or 60% (after any allowances) depending on their relationship (if any) to deceased.
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