Understanding the inheritance taxes that may apply to your estate in an overseas destination is essential, especially if you are relocating to France in retirement or planning to live in France as an expat and need to consider the best ways to approach succession planning.
This can become complex for non-residents since succession tax, the equivalent of UK inheritance tax, may apply to assets you own in the country even if your primary tax residency location is elsewhere.
The taxation specialists at Chase Buchanan Wealth Management explain how French succession tax works, how it differs from the UK inheritance tax system, and why it may apply to non-residents living some of the year in France or with property or other assets in the country.
An Introduction to Succession Taxes in France
Inheritance tax in France is called the droits de succession or succession tax and is paid by beneficiaries or heirs who inherit assets. Generally, if a French tax resident passes away and leaves assets to their inheritors, those receiving those assets are subject to the tax.
However, succession tax may also apply in other scenarios, such as when somebody who was previously a French resident makes a gift or leaves assets based in France to a beneficiary, even if their primary home was in the UK or a different jurisdiction.
There are several contrasts between the French and British systems:
- French succession tax is applied against a scale rather than the fixed 40% inheritance rate applied in the UK.
- Succession tax in France can apply to any gifts made from the person's estate during their lifetime. In the UK, this only applies if a gift is made within the final seven years of the individual's life.
- The taxes payable in France depend on the relationship between the beneficiary and the deceased, with considerable variances in allowances and tax rates.
- In France, a person's estate value is considered everything they own, plus 50% of assets held in partnership with a spouse or civil partner.
Similarities also exist, where spouses and civil partners are normally exempt in either country, and that in many cases, allowances apply—just as with UK inheritance tax, French succession tax is only payable if the inherited value exceeds the applicable allowance.
French Succession Tax Bands
The actual rate of succession tax in France can vary from zero to 60%, depending on the connection between the deceased and each person inheriting assets from their estate. Allowances also vary; for example, children have a €100,000 allowance each, but this reduces to €1,594 for each grandchild.
This means that a child inheriting assets from a parent is exempt against assets received worth up to €100,000. They would then pay 5% tax on amounts above the allowance up to €8,071, 10% on values up to €12,109, and so on, with a higher-rate tax of 45% applied to inheritances of €1.8 million or more—again, after deducting the initial allowance.
A sibling inheriting the same amount would apply a lower exemption of €15,932 and then pay 35% on inherited assets worth up to €24,430 and 45% on anything above that.
Therefore, the rate of tax payable and the amount of the inheritance exposed to tax can change dramatically, even if the amounts received are identical.
Understanding French Succession Tax for Non-Residents
Today, we're focusing on non-residents, so the best starting point is to clarify the circumstances and criteria that usually mean a non-French national is considered a tax resident. Note that tax residency and physical residency are not always interlinked.
As an indication, most expats are treated as tax residents if any of the following apply:
- They spend 183 days or more per year in France.
- Their spouse or partner and children live in France, even if the individual spends a larger proportion of time in the UK.
- They work in France, or the majority of their income originates in France.
- Most of their assets, such as a primary home, are in France.
Establishing your residency status can be complex, and there are scenarios where you could potentially ‘qualify’ as a tax resident in two locations, in which case tie breaks apply. It is always worth seeking independent advice if there is any confusion about your tax residency position.
When Might French Succession Tax Apply Against a Non-Resident Estate?
There are usually two reasons succession tax is payable if a person isn’t a tax resident: they own assets in France and wish to pass these onto beneficiaries, or they have made gifts in the past and were a resident at the time.
French Succession Tax on Non-Resident Assets in France
The allowances and exemptions we’ve mentioned apply, but if a non-resident owns assets in France, their beneficiaries could potentially be exposed to succession taxes. Importantly, the UK inheritance tax is also likely to apply, particularly if the deceased was a UK tax resident and/or citizen.
French succession tax would usually only apply to real estate assets held by non-residents, which means the estates of second homeowners are often subject to the tax.
Similarly, if a person made gifts during a period when they were a French tax resident, and had since relocated, that value may be exposed to succession tax, payable by the beneficiary.
Tax Treaties Impacting French Succession Tax for Non-Residents
UK citizens benefit from double tax treaties, which means the French and British governments agree not to tax the same individual, estate or entity on the same income or event.
Beneficiaries receiving assets located in France that are subject to succession tax will usually need to instruct their solicitor to submit a claim with the French tax authorities. They can obtain a refund or tax credit based on the difference between each tax obligation.
While less common, if the deceased was not a French resident but was a citizen of a country without a double tax treaty, much may depend on whether or not the beneficiary or heir was a French tax resident when the estate owner passed away.
Assumptions that succession taxes in France will not apply to your estate because you are a non-resident for tax purposes may often be incorrect.
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About Chase Buchanan Private Wealth Management
Chase Buchanan is a highly regulated wealth management company that specialises in providing global finance solutions for those with a global lifestyle. We are global financial advisers, supporting expatriates around the world from our regulated European headquarters, and local offices across Belgium, Canada, Canary Islands, Cyprus, France, Malta, Portugal, Spain, UK and the USA.
Chase Buchanan Ltd is authorised and regulated by the Cyprus Securities and Exchange Commission with CIF Licence 287/15.
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Published by: Steve OBrien