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French Taxation

Inheritance Planning in France

Thursday 06 September 2018

There may well be no inheritance tax in France between married couples, but it still makes sense to undertake some inheritance planning.

As is now widely known, in French law children have entrenched inheritance rights, which means on the death of a spouse or civil partner children will have a share in the inheritance.

These rights extend to children from a previous relationship, who have the same rights as those from the present marriage.

It also applies to both residents and non-residents, although only for real estate located in France for those who are non-resident.

As the surviving spouse retains a right to live in the family home, sharing of the inheritance on first death may not present a problem.

Nevertheless, it does mean that your surviving spouse lacks complete freedom of action, as other inheritors may, for instance, oppose the disposal of property jointly held, or demand their share in the proceeds of the sale of assets.

If relations between some family members are fractious, then it could (and often does), lead to stalemate or legal dispute.

There are various solutions to this problem, but for international French property owners, since 2015, under European law it has been possible to adopt the inheritance laws of your home country, a right that applies equally to non-EEA nationals.

Although the UK has opted out of this law, there is now a broad legal consensus that UK nationals who own property in France have the right to adopt the laws of their home country. This is because France has signed up to the law. However, for non-residents it has yet to be tested in the courts so there remains a legal risk. Those who are resident in France can clearly use the law.

Neither does this solution does not get you around French inheritance taxes, and given the lack of jurisprudence on the process, it is best done in collaboration with your solicitor and a notaire, particularly if you have assets outside of France.

Alternatively, one of the most common French law based solutions is to enter into a French marriage contract, called régime de communauté universelle, with the clause 'd’attribution intégrale'.

Under the terms of this contract the surviving spouse inherits the whole of the estate of their deceased.

Strictly speaking, such a contract cannot be used where there are children from a previous relationship. This is because it disenfranchises those children who are not a blood relation of the deceased.

One way around this problem would be to enjoin all family members in a family inheritance pact, which provides for the possibility of a global inheritance settlement with the whole of the family. That may not be a solution that suits everyone, and getting agreement might not be easy.

For those living in free union, it is essential that as a minimum you enter into a civil partnership in France, as this protects the property rights of the surviving partner and exempts them from inheritance tax, which would not otherwise be the case.

Short of a marriage contract or family pact, it is also possible to buy your French property en tontine, which would ensure it passed entirely to the surviving spouse on first death. As there is no inheritance tax between man and wife, this is no longer an ownership structure fraught with the tax liabilities it used to be, but for those with children it also disenfranchises one side of the family, as with a marriage contract.

The use of a French property company - Société Civile Immobilière (SCI) - is also useful non-residents, and it can also be adapted by residents to get around forced heirship laws.

Finally, you could also make a gift to your spouse or other family member, or make a will, although in each case it could only cover that part of your estate that was freely disposable.

You can read more about all of these solutions in our comprehensive Guide to French Inheritance Laws and Taxation.

 

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