According to the Conseil d'analyse économique (CAE), which is attached to the Prime Minister's office, France has become a "nation of heirs", due to the level of wealth accumulation that occurs through inheritance.
The authors state that inherited wealth now represents 60% of total wealth, compared to 35% in the early 1970s. That is a trend common to all developed countries, but which seems particularly strong in France.
Inequalities in inheritance are also widening: 50% of individuals will inherit less than €70,000 of wealth throughout their lives, while the top 0.1%, will receive about €13 million.
The authors state that, "Our tax system is a paper tiger, which frightens many people without having any real effect in containing the dynamics of inequality maintained by inheritances."
France ranks among the countries that taxes inheritances and gifts the most (€15 billion per year).
However, they consider it a mirage, as these revenues are driven upwards by the very traditional vision of the family on which the system is built: thus the tax rates in direct line (for a child or a married spouse) are much lower than those that apply for brothers and sisters, stepchildren or cohabiting partners. So much so that these inheritances and indirect online gifts bring in 50% of total revenues, even if they represent only 10% of the capital transferred.
The average age of heirs today is about 50 years, compared to 30 years at the beginning of the last century. And the average amount of inheritance is around €120,000.
In France, there an inheritance tax allowance of €100,000 per parent and per child, which also applies to gifts, although gifts granted under 15 years before death of the donor are reintegrated into the inheritance calculation. A progressive scale then applies, from 5% to 45%. Our guide below provides a full description of the system.
Nevertheless, the CAE study notes – especially for large assets – tax loopholes make it possible to reduce the real cost of inheritances.
The CAE points the finger in particular to assurance vie, the transfer of professional/business assets, the dismemberment of property and the non-taxation of unrealised capital gains in the event of inheritance or gift. We touched on these breaks in our article Inheritance Planning in France.
Thanks to these measures the rich manage to massively reduce their tax burden. "The top 0.1% pay only 10% of inheritance tax on all these inherited assets, far from the marginal rate of 45% displayed by the scale beyond €1.8 million transmitted in direct line". This implies, according to the study, that 40% of wealth escapes tax.
The CAE advocates rethinking the system in force by reforming these tax loopholes, in particular by deepening controls on business transfers and by rethinking the inheritance tax base.
The proposals from the CAE mirror the thrust of other recent reports from the OCED and a French parliamentary committee, who have also both pressed for a reinforcement of inheritance taxes.
Whether the proposals will see the light of day over the next few years, will depend on the outcome of the Presidential election, which will take place in April, but there seems no appetite amongst the leading candidates to increase taxes. On the contrary.
Valérie Pécresse for the mainstream right of centre party, the Republicans (LR) has been foremost in declaring her position. Her programme provides for "totally exempting from inheritance tax the transfer of a family business" and to increase the allowances for inheritance and gifts taxes children to €200,000 (against € 100,000 currently) every 6 years (instead of every 15 years). Allowances to other family members would also be increased.
President Macron has yet to spell out his programme in detail, but he recently stated his wish to encourage "transmissions populaires", without specifying what he meant by it. He does, however, seem to be clearly against an increase in inheritance taxes, stating: "I am not one of those who think that we must increase inheritance tax at all costs, on the contrary." His current Minister of Finance has stated that he favours a reduction of taxes.
On far right, Marine le Pen plans to "strengthen intergenerational solidarity by allowing each parent to transmit without taxation €300,000 to each child on real estate and to reduce the duration allowing to make an exempt gifts every 10 years (against 15 years) in the current system."
As for the Socialist Party, Anne Hidalgo, a leading candidate, plans to increase inheritance tax beyond €2 million, and to restore the wealth tax.
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