Inheritance tax ? known as ?succession tax? in France – is one of the most unpopular taxes. Having paid tax all our lives, being taxed again on death, on the net value of previously
Inheritance tax ? known as ?succession tax? in France – is one of the most unpopular taxes. Having paid tax all our lives, being taxed again on death, on the net value of previously taxed assets and income, understandably feels like being excessively taxed. However, it is our children and other beneficiaries who lose out.
It is surprising therefore, how few people have adequate estate planning in place, especially since it is usually possible to lower your tax liabilities so that you can leave more of your wealth to your loved ones, and much, much less to the taxman.
None of us like to think about the day we will shuffle off this mortal coil, but estate planning is something we have to deal with today, before it is suddenly too late. In France it is even more important to plan early, since there are more opportunities to save money for your heirs if you take action before age 70.
With so many tax reforms in France over the last couple of years, the succession tax changes have been a little overlooked, but it is important to keep up to date. The tax free allowance for children was reduced by almost ?60,000, which could make a considerable difference to the amount of net inheritance they receive. Also, the allowances used to renew every 10 years, but the renewal period has now been increased to 15 years.
Succession tax rules and rates
If you are resident in France, any worldwide assets you give away on death or as a gift are liable to succession tax. Any assets you own in France, such as property, are always subject to this tax, regardless of whether you or the recipient lives in France.
The tax is calculated on, and paid by, each individual beneficiary. Transfers between spouses and PACS partners on death are tax free, but lifetime gifts are not. For everyone else the tax rates and allowances vary according to their relationship to you. For distant relatives the tax rates are very high. The tax must, generally, be paid within six months of death.
The tax rates for children (including adopted but not step-children) and other relatives in the direct line start at 5% for inheritances under ?8,072 and rise progressively (some might say perniciously!) to 45% for inheritances over ?1,805,677. The same rates apply to spouses/partners in the case of gifts.
Under the current rules, your children will each receive a tax free allowance of ?100,000. This was reduced last year from ?159,325. If you make a lifetime gift to your spouse, they receive an allowance of ?80,724.
The value of your main home can be reduced by 20% for succession tax purposes, but only if it is occupied as a main home by your surviving spouse/partner or by one of your children.
If you leave assets to a brother or sister, they will pay succession tax at either 35% or 45%, depending on the amount. Their tax free allowance is just ?15,932.
There is an exception for siblings who have been living with you for the last five years and either over 50 or unable to work because of a disability. In this case they benefit from the same rules as spouses.
Relatives to the fourth degree pay tax at 55%, with nephews and nieces receiving a ?7,967 allowance.
Everyone else will lose 60% of their inheritance to tax, and their tax-free exemption is a mere ?1,594. Unmarried partners who have not entered into a PACS arrangement, step-children and god-children are all classed as non-relatives.
New EU succession law
So far, the higher tax rates have been academic for many people. France?s strict succession law favours your children first, and then your surviving spouse, so there was limited possibility to leave assets to siblings, godchildren, friends etc. even if you wanted to.
This will change from August 2015, when a new EU regulation will allow you to elect, via your Will, for the laws of your country of nationality to apply. British expatriates will be able to distribute their wealth under the less restrictive provisions of British law.
Some people are getting this new law mixed up with succession tax, but it only applies to succession law. You cannot opt for UK inheritance tax to apply instead of succession tax.
There is one important tax impact you need to consider though. If you leave assets to relatives beyond the direct line, or non-relatives, they will have to pay very high tax rates, up to 60%, as outlined above, unless you plan to protect them from this tax.
Succession tax planning
Most, if not all, individuals I am sure want their beneficiaries to receive most or all of their inheritance, with as little as possible going to the taxman. Succession tax planning is extremely important, and with professional advice can make a significant difference.
For example, assets held within an Assurance Vie benefit from considerable succession tax savings if the policy was established with lives assured under age 70. The subscriber need not be a French resident, so you can set up the policy before you to move to France, or to cover assets held in France if you are non-resident.
Assurance Vie provides many other tax breaks in France too, such as tax free roll up of income and gains.
Do not risk leaving your children and other beneficiaries an unnecessarily large tax bill. Seek specialist advice from Blevins Franks and take action now, to ensure you make any inheritance as easy for them as possible, and to ensure that your wealth is passed on to your loved ones rather than the taxman.
20 May 2013
The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual should take personalised advice.