Payment of French Inheritance Tax
Tuesday 09 April 2019
Inheriting a property in France is hardly unwelcome news, but sometimes it comes with an obligation to pay inheritance taxes.
In France the liability for inheritance tax falls to the inheritors of the estate, although a spouse or civil partner is exempt from the tax, and there are reasonably generous allowances for children.
Where there is a liability, all inheritors are jointly and severally liable.
It does not, of course, automatically follow that inheriting a property in France creates an inheritance tax obligation.
The value of the estate may be below the threshold for inheritance tax, and even if it is not there are allowances to children before they become liable.
Nevertheless, it is not difficult to see that if you have a couple of children and a property in France worth upwards of €250,000, some inheritance tax could be payable.
If inheritors then wish to retain the property they are going to need cash in order to meet the tax bill. If not, the tax obligation can sometimes force inheritors into selling the property, when they might otherwise wish to hold it for their own use, use it for investment, or take their time over the sale.
Robert Kent, of French tax advisors Kentingtons states that: "The French taxman is not entirely unsympathetic to that predicament, but in recent years legislative changes have reduced the scope for those finding it difficult to pay the taxes to ponder their options."
Broadly speaking, if you are unable to settle the taxes in a single payment you can do so through payment by instalments, or, in certain cases, by differing payment of the tax to a date in the future.
Payment by InstalmentsUp until 2014 it was possible to pay over 10 years at zero rate of interest.
That period of repayment has since been reduced to 3 years, and nominal interest is now payable on the outstanding balance.
The rate is one based on the average rate of interest used by banks for mortgage loans, currently around 1.5%.
If you wish to take advantage of this offer you must do so at the time of the declaration of the succession to the notaire. All inheritors must agree to it.
You will also normally be required to offer some form of guarantee, often the property in France if it is being kept.
Deferred PaymentIt is only possible to defer payment of the taxes if you inherit the reversionary interest of the property. That is to say, if you own the nue-propriété.
This might occur for instance, where following the death of a spouse, the surviving spouse remains in the property with the life interest (usufruit) and the children own the reversionary interest.
That ownership structure is an approach frequently used to reduce inheritance tax.
Using this option, you can either elect to pay the interest only on the taxes due until death of the surviving spouse, or elect to pay no interest, but pay inheritance taxes on the whole value of the property. The interest is currently around 1.5%.
Inheritors have six months to declare the succession declaration to the French tax authority (12 months where the deceased lived outside of France).
If there is a delay in making the declaration then the inheritance tax penalties can be substantial.
After six months of the declaration, if the inheritance taxes are not paid then nominal interest of 0.4% arises on the balance. After a year has lapsed a 10% penalty is imposed.
This article was featured in our Newsletter dated 09/04/2019