Succession Tax in France

Understand how succession tax is calculated in France...

French succession tax is a tax on gifts and inheritances. Succession tax is paid by each individual beneficiary depending on the amount inherited or received as a gift and their relationship to the deceased/donor.

The gift or inheritance is taxable if the deceased/donor is resident in France at the date of death, or if not a French resident, where the asset being gifted or bequeathed is located in France.

Failing that, a gift or inheritance is also taxable if the recipient is resident in France and has been so for at least six of the ten years prior to the year in which the gift or inheritance is received.

There is (since 22 August 2007) no succession tax on inheritances between spouses and PACS partners, but tax is still due on life-time gifts over the available allowance (see below). This inheritance tax exemption extends to sisters and brothers who are single, widowed or divorced providing that at the time of succession they are aged more than 50 or are suffering from an illness which prevents them from working, and they were living with the deceased during the five years preceding the death.

Succession tax rates for 2011

Taxable inheritance to spouses and PACS partners (gifts only):

Taxable inheritance in the direct line, including adopted children but not step-children unless adopted:

Taxable inheritance: siblings and other relatives and non-relatives:

Allowances for 2011

• Spouses/PACs partners - gifts (inheritances exempt): €80,724
• To each natural or adopted child from each parent: €159,325
• To each natural or adoptive parent: €159,325
• To a grandchild (gifts only): €31,865
• To a great-grandchild (gifts only): €5,310
• To a sibling not covered above: €15,932
• To a nephew/niece (gifts and inheritances): €7,967
• To any other person: €1,594
• To any disabled person - additional to above: €159,325

The living representatives of a deceased descendant share that descendant's allowance between them in addition to their own allowances.

Unmarried couples are taxable as "strangers" and so have an allowance of only €1,594 unless they have entered into a PACS agreement, the French version of a civil partnership, open to both same-sex and heterosexual couples in France. PACS partners are entitled to a deduction of 30 percent from the value of the main residence in the same way as a married couple.  Couples who have entered into a UK civil partnership are treated as PACS partners in France.

The allowances (with the exception of the one-off cash gift allowance) all renew every 10 years for lifetime gifts. Gifts up to the available allowances can therefore be made every 10 years tax-free.

Deductions

The value of the main home can be reduced by 20 percent for succession tax purposes provided the property is also occupied as a main home by the surviving spouse, PACS partner, or by children of the deceased.

If shares are held in a qualifying business, the value is reduced by 50 percent in calculating the tax due. The deceased must have held the shares for more than two years, the investors must keep these for six years and at least one heir must either work full time in the business or exercise the function of a director for the next five years. In the case of a quoted company, the deceased must own 25 percent, or 34 percent of the equity if unquoted.

Family reductions

Where the beneficiary has three or more children, they can reduce their French inheritance tax bill by the following amounts:

• €610 per child, but only for the third and subsequent children, where the inheritance came from a parent or spouse
• €305 per child, but only for the third and subsequent children, where the inheritance came from a more distant relative

Payment of succession tax

Succession taxes are generally payable within six months from the date of death.

A beneficiary can apply to pay the tax in equal instalments at maximum intervals of six months over a maximum period of five years (depending on the amount of tax payable). Interest is charged at the official rate of interest in place at the time the application is made. This rate remains unchanged for the total period of payment.

The instalment period can be extended to ten years where a child is the recipient provided at least 50 percent of the inheritance is non-liquid assets (such as real estate, unquoted shares, business assets, patents, and so on).

If the property in question is sold, then the succession tax becomes payable immediately.