None of us want to think about the day we will shuffle off this mortal coil, but on the other hand most of us do want to make life as easy as possible for our family when we do finally go to meet
None of us want to think about the day we will shuffle off this mortal coil, but on the other hand most of us do want to make life as easy as possible for our family when we do finally go to meet our Maker. If you spend a little time now, planning ahead and reviewing how all your assets will be passed on to your spouse, children and other beneficiaries, including the steps you need to take to ensure your assets are distributed as you wish and with as little cost and tax as possible, you can achieve peace of mind for you and your loved ones.
France abolished succession tax between spouses and PACS partners in 2007, but your children and any other beneficiaries will still have to pay tax on the amount they receive from you or the survivor of you both. Unfortunately there are no proposals to reform the outdated Napoleonic code of succession law which legally requires parents to leave a major proportion of their wealth to their children instead of their spouse or partner. Estate planning is essential!
If you are a French resident at the date of your death, then most of your assets will have to pass under this Napoleonic code. Overseas property and certain tax efficient investments are excluded however.
If you are a non-resident of France but own property here, it will be subject to the local succession laws on your death.
Under French succession law, your assets do not automatically pass in accordance with your Will (unless your Will happens to precisely match French Succession Law). The children are ?protected heirs?, which is almost always a major problem because the surviving spouse is unable to benefit from all of the joint wealth following the death of the first spouse or partner. In other words, if, say, the husband dies first, his children – and not his wife – will inherit the major part of his estate, whatever his Will may say, unless he has taken action to avoid this pernicious law.
This includes children of a previous marriage which can often lead to complex problems for the surviving spouse or partner.
If you have one child, then half of your estate will be given to him or her when you die. Only half of your estate is freely disposable and so can be passed to your spouse.
If you have two children, then each receives a third of your estate, with the final third free to be given to your spouse.
If you have three or more children, your spouse can only inherit a quarter of your estate, with the other three quarters divided among your children in equal shares.
Providing the surviving spouse has lived in the property at the time of the deceased?s death, he/she retains the right to live in the home for one year free of cost. Where the property is jointly owned by the couple, the survivor now has the right, exercisable in the 12 months consequent upon the death, to claim the right to live in the property (un droit d?habitation) for the rest of his/her life.
While this means your spouse should not be forced out of your home, you will probably still want to avoid or mitigate the impact of succession law as much as possible. There are a number of ways to do this, but it is complex and you should seek professional advice to make sure you get it right.
Also note that if you have entered into a PACS (a civil partnership for same sex and heterosexual couples), although for many purposes you are treated as a married couple, you do not enjoy the same inheritance rights as a spouse, so you need to pay particularly close attention to the rules.
Your estate is liable to succession tax in France on your worldwide assets if you are resident here at the date of death. If you are non-resident, then only your real estate in France is liable. It is a tax on gifts and inheritances and is paid by the beneficiary.
There is no tax on inheritances between husband and wife or PACS partners although there is tax on lifetime gifts between spouses and PACS partners above an allowance of ? 80,724 in 2011.
Remember, under French succession law (unless you have planned to circumvent it), your children must inherit some of your estate, so there will always be some succession tax to pay when you die unless the value of your estate falls below the allowances available. Also, on the second death your children will inherit the assets originally received by the surviving spouse, so succession tax will be due again then.
Each of your children will receive a tax-free allowance, which is ?159,325 in 2011. The succession tax rates then start at 5% for inheritances worth under ?8,072 and climb to 40% for inheritances over ?1,805,677.
More distant relatives have lower allowances and higher tax rates. If you were to leave assets to a brother or sister, for example, the tax free allowance is usually just ?15,932 and the tax rate 35% or 45%. Non relatives receive an allowance of just ?1,594 and the tax rate is a flat 60% regardless of the amount inherited.
There is a 20% discount on the deceased?s main home, but only if it is also the main home of the beneficiary.
French succession tax and law are good examples of why French tax and law have a reputation for being complex and potentially expensive. This does not mean, however, that there is nothing you can do to avoid or mitigate the impact of both. With professional guidance from Blevins Franks advance planning and the appropriate structures you should be able to leave your assets to the right individual(s), at the right time and in the right proportions, and with less (if any) succession tax than you?d expect.
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 must take personalised advice.
By Bill Blevins, Managing Director, Blevins Franks
4th February 2011