Death and taxes may well be unavoidable, but when they come together it is not surprising that if we cannot cheat death, most of us want to at least be able to cheat the taxman.
Being potentially liable for French inheritance tax is arguably a nice problem to have, for if your successors have a liability it probably means that you have left them to enjoy a reasonably comfortable future.
In practice, for most households, there is little if anything to be concerned about, for there is no inheritance tax between man and wife or those in a civil partnership, and there is an general allowance for children of €100,000 per parent per child. Accordingly, in a family of four, there will be no inheritance tax liability to the children on net assets up to €400,000.
Beyond these allowances, inheritance tax kicks in at the rate of around 20% on nets assets up to €552,000, increasing on a sliced based up to 45% for that part of the estate over €1.8million.
So, in our family of 4, in an estate valued at around €1million, the tax liability of the two children would be around €78,000 each. In the grand scheme of things, many parents may take the view that would not be a particularly onerous tax burden to have to shoulder.
Nevertheless, it is not always so straightforward for not all families comprise our stereotypical nuclear family of four, the growth in second marriages has complicated the inheritance equation for many international property owners and many others seek a degree of flexibility in the distribution of their estate.
In addition, if the estate comprises mainly real estate and other fixed assets, beneficiaries may find it difficult to pay the taxes without having to sell the property, a not infrequent problem.
Whatever the circumstances, most owners will wish to adopt tax strategies that minimise their tax liability, a psychological desire of which tax practitioners are keenly aware.
Reports that circulate sometimes give the impression that there are many options available, but the regulations in France are so tightly drawn that the scope for tax avoidance is limited, certainly without long-term planning. The most common problems are often caused by people acting on advice/commentary from friends, neighbours and social media, for what may work perfectly for them may be a total catastrophe for someone else.
So what are the main solutions often cited?
Mortgage
As inheritance is only payable on the net assets, and a mortgage is tax deductible, one approach is to buy your French property with a mortgage.
Unfortunately, however, in France the overwhelming majority of mortgages are granted on condition of the mortgagee taking out a mortgage protection policy, to operate in the event of your death, thereby negating the benefits of holding mortgage debt. This may, however, be a solution for non-residents, but lenders are increasingly restrictive on such loans and since Brexit this is particularly the case for British buyers.
You can read more at Mortgages and Inheritance Planning.
Trust Structures
The use of a trust structure, commonly used in inheritance planning in many countries, is one that offers no tax advantage in France. Indeed, it is potentially a liability as beneficiaries can face a tax charge of 60%.
You can read more in Use of Trust Structures in France.
European Succession Law
European law allows you, by a Will, to adopt the inheritance laws of your home country. However, it only gets around enforce rights of French inheritance laws; French inheritance taxes will be payable in the normal manner, so it is no solution to reducing inheritance tax.
Moreover, the French government have passed a law that re-imposes the supremacy of French inheritance law over European law, so until such time as it is overturned in the courts, it has no effect. The law applies where the deceased or one of their children is resident in France or Europe at the time of their death. The European Commission are investigating the matter and legal challenges in being made. You can read more in New French Inheritance Law under EU Investigation.
The new law only covers assets in France, but, if you are resident in France all worldwide assets are liable to inheritance tax so there is no advantage gained in transferring assets abroad.
You can read more in European Succession Law.
Protection to Surviving Spouse
Many couples choose to maximise the protection to the surviving spouse through a French marriage contract, called 'communauté universelle' or purchase property 'en tontine'. Whilst such a choice is understandable and often appropriate, it does reduce the tax allowance that children receive.
One solution is, therefore, simply not to opt for either option and instead design other solutions or accept sharing of the inheritance on first death. There is no inheritance tax between man and wife and your children will be able to benefit in full from their allowances.
Gifts
Another approach used is to make gifts to children during your lifetime.
Although there is a gift tax in France, there are allowances available, notably €100,000 from each parent to each child.
The problem with it is that unless the gift is made 15 years before your death it is reintegrated into your estate in the assessment of beneficiaries liability for inheritance tax.
So gifts are an 'early doors' option, and given the length of the expiry period, and the slings and arrows which any family may face over such a long period, it is one that many are likely to be hesitant about using.
One approach is to skip a generation, as it is possible to make gifts to grandchildren, up to €63,700 per grandchild per grandparent, meaning grandparents with 4 grandchildren can gift over €500,000 to their grandchildren free of taxes. Age limits apply to half of this sum. As grandchildren are not normally direct heirs of the estate, and provided they do not otherwise inherit via your Will, the gift is not reintegrated into the estate for the purposes of French inheritance tax. You can read more at Inheritance Planning for Grandchildren.
In 2025 the government introduced an additional allowance for children and grandchildren, which you can read about at New Inheritance Allowance.
A related strategy, if you have the resources, is to simply be very generous with your children during your lifetime as, provided it is accustomed practice in the household for you to give cash lump sums to your children on their birthday, Xmas, etc, it is not taken into account for the purpose of the gift tax threshold. You can read more about this practice in our article Xmas Presents and Gift Tax.
It is also possible to increase protection to the surviving spouse by a gift between man and wife.
See also our Guide to Gift Tax in France.
Property Dismemberment
Another approach is to purchase or pass on a property during your lifetime to a member of your family.
This method consists of separating the two rights attached to a property, namely the reversionary interest and the usufruct.
After dismemberment, the beneficiary holds the reversionary interest in the property, whilst the donor retains the right to live in the property until their death, when the reversionary interest and life interest are then merged and the beneficiary obtains full freehold of the property.
The downside is that, depending on the value of the property, gift tax is likely to be payable on transfer of the reversionary interest, but it will be on a discounted value, as it is not the full freehold, and on your death no inheritance tax is payable on merger of the two interests.
You can read more at How to Buy French Property as an Unmarried Couple.
Société Civile Immobilière (SCI)
Although less common today, many international property owners have purchased their property through a French property company, called a Société Civile Immobilière (SCI).
Such an ownership structure may well be useful for unrelated property owners/co-habiting couples, and it can provide some flexibility in inheritance planning, but the virtues of an SCI for tax optimisation are frequently overstated.
Nevertheless, it is possible to reduce inheritance tax liability by having a debt structure in the company, for purchase or improvements, although if the loan is covered by a mortgage protection policy it is of no value for inheritance planning.
One other possible option to reduce potential liability is to purchase using a crossed-ownership structure within the company, called démembrement croisé, similar to dismemberment of the property as described above, but good professional advice is essential.
You can read more in our Guide to Société Civile Immobilière (SCI).
Assurance Vie
Of all the options available, a particular type of life insurance, called assurance vie, is perhaps the most interesting option.
This is because all funds included in the policy are excluded from the estate of the deceased after death, so do not come into the inheritance tax calculation.
The capital goes to the person or persons designated in the beneficiary clause of the contract, which may or may not be a member of your family. You can leave it to anyone you wish.
The maximum you can put into such a policy on a tax-free basis is €152,000, but only up to the age of 69 years, beyond which the capital in the policy is taxed at 20%, after an allowance of €30,500 for all beneficiaries.
It is worth noting that all subsequent growth of the invested sum is also outside of the estate, albeit that is going to be of greater interest on a policy held over the long-term at a reasonable rate of interest. Neither is the money locked in if, in exceptional circumstances, you need it.
Due to taxation laws in the USA, this product is not one that is suitable for US nationals.
You can read more in Life Insurance in France.
More generally, you can read our comprehensive, free Guide to French Inheritance Laws and Taxation.
Finally
There is one other solution to reducing your inheritance tax bill - just spend it!
Advice
For advice contact our Property Clinic, and one of our advisors will get back to you.
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