Maximise Your Inheritance in France

Inheritance planning is vital to estate planning, especially if you have significant assets or properties in France. However, maximising your inheritance requires careful planning and attention to the legal framework and taxation laws. This guide provides a comprehensive overview of the key considerations when planning your estate in France.
 

Understand French Inheritance Law

France’s unique legal system governs inheritance and succession, known as ‘forced heirship’ or ‘legitimate.’ This means that a portion of the estate must be allocated to specific family members, regardless of the deceased’s wishes.

The surviving spouse or civil partner will receive a fixed proportion of the estate, with the remaining assets divided among the children in equal shares. The ‘legitimate’ portion of the estate is calculated based on the number of children and their relationship to the deceased.

It is possible to deviate from this legal framework through a will or a trust. But these options have limitations and require careful consideration.

Therefore, it is crucial to seek the advice of a skilled professional who can guide you through the intricacies of French inheritance law.

Plan Your Assets

When planning your inheritance in France, you must consider all the assets you own in the country. This includes real estate, bank accounts, investments, and personal property. You should also consider your assets outside France and how French inheritance tax laws will impact them.

French inheritance tax is calculated based on the estate’s value and the relationship between the deceased and the beneficiaries. The tax rates vary, with higher rates applied to more distant relatives or non-relatives.

There are also exemptions and reliefs available for certain assets and beneficiaries. You may wish to consider the following strategies to maximise your inheritance:

• Lifetime gifts: Gifting assets during your lifetime can reduce the size of your estate and, therefore, the inheritance tax liability. There are limits and rules around these gifts, and they should be carefully planned to avoid unintended consequences.
• Trusts: Trusts can help protect assets and ensure they pass to the intended beneficiaries. Trusts can also provide tax benefits, particularly for non-residents.
• Life insurance: Life insurance policies can provide a tax-free lump sum to your beneficiaries, which can be particularly useful if you have liquid assets in France that you wish to pass on.

Consider Your Residency Status

Your residency status can impact your inheritance tax liability in France. This is because non-residents are subject to French inheritance tax on their French assets only, while residents are subject to tax on their worldwide assets. However, residency status is not always straightforward. It can depend on factors such as your time spent in France and your ties to the country. Brexit has impacted your residency status in France if you are a UK citizen. You may need to consider applying for a residency permit or seeking advice on maintaining your residency status.

Understand the French Inheritance Tax System

French inheritance tax is calculated based on the estate’s value and the relationship between the deceased and the beneficiaries. Consequently, the tax rates vary, with higher rates applied to more distant relatives or non-relatives.

There are also exemptions and reliefs available for certain assets and beneficiaries. The following are some key considerations when it comes to French inheritance tax:

• Thresholds: Different tax thresholds depend on the relationship between the deceased and the beneficiaries. For example, spouses and civil partners are exempt from inheritance tax, while children have a tax-free allowance of €100,000.
• Rates: The tax rates vary from 5% to 45% depending on the estate’s value and the relationship between the deceased and the beneficiaries. For example, the tax rate for a spouse or civil partner is 0% up to €80,724, while for non-relatives, the tax rate is 60% on the estate’s value. The following are the current inheritance tax rates and tax-free allowances for different categories of beneficiaries in the applicable jurisdiction:

For parents, children, and grandchildren, the tax-free allowance is €100,000. A 5% tax applies to amounts up to €8,072, 10% on €8,072–€12,109, 15% on €12,109–€15,932, 20% on €15,932–€552,324, 30% on €552,324–€902,838, 40% on €902,838–€1,805,677, and 45% on amounts exceeding €1,805,677.

 Brothers and sisters have a tax-free allowance of €15,932. They are subject to a 35% tax on amounts up to €24,430 and 45% on amounts over €24,430.

 Relatives up to the fourth degree, that include nephews and nieces, have a tax-free allowance of €7,967 and are subject to a flat-rate tax of 55%.

 Remote relatives and other beneficiaries have a tax-free allowance of €1,594 (€159,325 if disabled) and are subject to a flat-rate tax of 60%.

• Exemptions and reliefs: Exemptions and reliefs are available for certain assets and beneficiaries. For example, primary residences are exempt from inheritance tax if the surviving spouse or civil partner inherits them. Reliefs are also available for gifts to charity and certain types of businesses.

It is crucial to seek the advice of a skilled professional who can guide you through the intricacies of French inheritance tax laws and help you develop a plan that maximises your inheritance.

Plan for Succession

Planning for succession is essential to ensure your assets pass to the intended beneficiaries. This involves identifying your heirs and developing a plan to distribute your assets. You may consider creating a will or a trust to achieve this. It is also essential to review and update your plan regularly, particularly if your circumstances change, such as a change in your residency status or a significant change in your assets.

Seek Professional Advice

Maximising your inheritance in France requires careful planning and attention to the legal framework and taxation laws. Thus, it’s essential to seek the advice of skilled professionals who can guide you through the intricacies of French inheritance law and taxation. An estate planning lawyer can help you develop a plan that meets your specific needs and goals, taking into account your assets, residency status, and beneficiaries. A tax advisor is trained to help you navigate the complex French inheritance tax system and identify opportunities for tax planning.

Consider Lifetime Gifts

Lifetime gifts are a useful tool for reducing the value of your estate and minimising inheritance tax liability. There is no gift tax in France, but gifts made within 15 years of death are subject to inheritance tax. However, there are some exemptions and reliefs available for lifetime gifts. For example, gifts to your spouse or civil partner are exempt from inheritance tax, as are gifts to children, grandchildren, and great-grandchildren up to a certain amount. You may also wish to consider making gifts to charities or setting up a family trust to hold assets and provide for your beneficiaries. These strategies can help reduce your inheritance tax liability and ensure your assets pass to the intended beneficiaries.

Understand the Community of Property Rules

In France, married couples are subject to the community of property rules, meaning all assets acquired during the marriage are jointly owned. This can affect inheritance planning, as half of the couple’s assets will automatically pass to the surviving spouse. However, it is possible to opt out of the community of property rules and establish a separate property regime. This can be useful for inheritance planning, as it allows each spouse to control their assets and ensure they pass to their intended beneficiaries. It is vital to seek the advice of a skilled professional when considering the community of property rules and other legal issues related to marriage and inheritance planning in France.

Consider Life Insurance

Life insurance can help provide for your beneficiaries and minimise inheritance tax liability. In France, life insurance policies are subject to inheritance tax, but some exemptions and reliefs are available. For example, policies that pay out to a surviving spouse, or perhaps civil partner, are exempt from inheritance tax, as are policies that pay out to children or grandchildren up to a certain amount. Therefore, it is essential to consider the tax implications of your life insurance policy when developing your inheritance plan.

Consider the Impact of Other Taxes

In addition to inheritance tax, there are other taxes to consider when developing your inheritance plan in France. For example, capital gains tax may be due on the sale of assets, and there may be wealth tax implications for high-net-worth individuals. Consider the impact of these taxes when developing your plan, and seek the advice of a skilled professional who can guide you through the complex tax landscape in France.

Consider the Implications of Multiple Nationalities

If you hold multiple nationalities, it is important to consider the implications for inheritance planning in France. France has a succession law that applies to everyone with assets in France, regardless of their nationality. So, even if you hold another nationality, your French assets will be subject to French inheritance law and taxation. However, France has agreements with some other countries to avoid double taxation and ensure that inheritance law is applied consistently. It is important to understand the implications of your multiple nationalities and seek the advice of a skilled professional who can guide you through the complex legal landscape.

Be Aware of Forced Heirship Rules

In France, forced heirship rules dictate how a person’s assets must be distributed upon death. These rules ensure that certain family members, such as children and spouses, receive a minimum estate share. It is important to be aware of these rules when developing your inheritance plan and to seek the advice of a skilled professional who can help you navigate them. But there are some ways to work within the forced heirship rules to ensure that your assets pass to the intended beneficiaries.

Consider Estate Planning Vehicles

Several estate planning vehicles can be used to maximise your inheritance in France. One popular option is the SCI (Société Civile Immobilière), a type of property holding company that can be used to hold and manage real estate assets. An SCI can provide tax benefits, protect assets from creditors, and ensure that assets pass to the intended beneficiaries. Working with a skilled professional when setting up an SCI or other estate planning vehicle is essential to ensure it is properly structured and meets your specific needs and goals.

Plan for International Inheritance

If you have assets in multiple countries, it is important to consider the implications for inheritance planning. Countries have different inheritance laws and tax systems, making it challenging to ensure your assets pass to the intended beneficiaries. Seek the advice of a skilled professional who can help you develop an international inheritance plan that considers the laws and tax systems of each country where you hold assets.

Develop a Succession Plan

Developing a succession plan that outlines how your assets will be distributed upon your death is important. This plan should consider your personal wishes and goals and France’s legal and tax framework. A succession plan can provide peace of mind and ensure your assets pass to the intended beneficiaries. You must work with a skilled professional when developing a succession plan to ensure it is legally valid and meets your needs and goals.

Reviewing Your Estate Plan Regularly

Please review your estate plan regularly. This is necessary to ensure that it remains up to date and reflects your current wishes and circumstances. This is especially important if you experience significant life changes like marriage, divorce, or childbirth.

By reviewing your estate plan regularly, you can make sure your assets pass to the intended beneficiaries and minimise the amount of inheritance tax they must pay.

Creating a Family Trust

Finally, creating a family trust can be a useful way to protect and manage your assets while ensuring they pass to the intended beneficiaries. In a family trust, assets are held by a trustee and managed to benefit the beneficiaries.

Trusts can provide tax benefits, protect assets from creditors, and ensure that assets pass to the intended beneficiaries. Work with a skilled professional when setting up a family trust to ensure it is properly structured and meets your specific needs and goals.

Maximising your inheritance in France requires careful planning and attention to the legal and taxation framework. It is essential to understand the French inheritance law, plan your assets, consider your residency status, understand the French inheritance tax system, plan for succession, and seek professional advice.

Please note that this article is only provided as information and should not be relied on as legal or tax advice. French inheritance law and taxation are complex, and it is essential to seek the advice and guidance of skilled professionals before taking any decisions.

With careful planning and the guidance of skilled professionals, you can maximise your inheritance. It’s also a surefire way to ensure your assets pass to the intended beneficiaries.