French Inheritance Tax Explained: Rates, Rules, and How to Reduce Your Liability

For expatriates and residents alike, the French tax system can seem daunting. France is known for having a robust social safety net funded by significant taxation, and this extends to how wealth is passed down to the next generation.

If proper planning is not put in place, "succession duties" (droits de succession) can take a substantial portion of an estate. However, the French system also offers generous, renewable allowances that allow families to transfer significant wealth tax-free.

Current Inheritance Tax Rates in France

Before looking at how to avoid the tax, it is important to understand what the rates are if you don’t plan ahead. In France, the tax is progressive—the more you inherit, the higher the percentage the state takes.

For direct inheritance (from parents to children), after applicable allowances are deducted, the remaining taxable sum is taxed according to the following brackets:

• 5% on amounts up to €8,072

• 10% on amounts between €8,072 and €12,109

• 15% on amounts between €12,109 and €15,932

• 20% on amounts between €15,932 and €552,324

• 30% on amounts between €552,324 and €902,838

• 40% on amounts between €902,838 and €1,805,677

• 45% on amounts exceeding €1,805,677

It is important to note that these rates apply to the net taxable assets after all tax-free allowances have been used. The tax free allowance for a parent to a child is currently €100,000. For the most up-to-date details on these brackets and simulations, you can visit the French Ministry of Economy’s official page here:

https://www.economie.gouv.fr/particuliers/preparer-ma-retraite-et-ma-succession/droits-de-succession-que-devez-vous-payer-sur-votre-part

Minimizing the Tax: The €100,000 "15-Year Rule"

To avoid the high tax rates listed above, French locals utilize the system of renewable allowances. The most significant of these is the standard parental allowance.

Under current regulations, each parent can donate up to €100,000 to each child entirely tax-free.

The key to this strategy is the timeframe: this allowance resets every 15 years.

This provides a massive opportunity for long-term estate planning. Because the allowance applies per parent and per child, a married couple can transfer €200,000 to a single child tax-free. If they have three children, the couple can transfer €600,000 in total assets without paying a single euro in taxes. By starting early, parents can perform this donation, wait for the 15-year clock to reset, and donate again.

The "Family Cash Donation" Exemption (€31,865)

In addition to the standard €100,000 allowance, there is a specific, separate exemption known as the don familial de sommes d'argent (family cash donation).

This rule allows you to donate €31,865 in cash (via check, wire transfer, or money order) to a child, grandchild, or great-grandchild tax-free. If you do not have direct descendants, this can sometimes be applied to nieces and nephews.

Just like the standard allowance, this cash exemption resets every 15 years. However, to utilize this specific cash bracket, two conditions must be met:

1. The donor (parent/grandparent) must be under 80 years old.

2. The beneficiary (child/grandchild) must be over 18 years old (or legally emancipated).
   

How to Declare Your Donation

You generally do not need a notary to process these specific cash gifts (unlike real estate transfers). However, it is mandatory to declare the gift to the tax authorities. This declaration is crucial because it officially starts the 15-year countdown for the allowance to recharge.

The French government has simplified this process significantly. You can now declare these gifts online via your personal area on the tax website.

• Link for Online Declaration: Impots.gouv.fr - Is online declaration mandatory?

Stacking Allowances for Maximum Benefit

By combining these two mechanisms, families can transfer significant sums. If a parent is under 80, they can "stack" the allowances:

• €100,000 (Standard Allowance)

• €31,865 (Cash Exemption)

• = €131,865 tax-free per parent, per child.

For a couple with two children, this strategy allows for the tax-free transfer of over half a million euros every 15 years.

If you go beyond the tax free allowance, you will have to pay donation taxes based on the following thresholds:

Gift Tax Rates for Direct Lineage (Taxable Amount After Allowance)

• Up to €8,072: 5%

• From €8,073 to €12,109: 10%

• From €12,110 to €15,932: 15%

• From €15,933 to €552,324: 20%

• From €552,325 to €902,838: 30%

• From €902,839 to €1,805,677: 40%

• More than €1,805,677: 45%

https://www.service-public.gouv.fr/particuliers/vosdroits/F14203

Official Resources (in French)

For the specific legal text and calculators, consult these official government resources:

• Calculation and Payment of Duties: Calcul et paiement des droits

• Gifting FAQ: Que puis-je donner à mes enfants/petits-enfants sans avoir à payer de droits?

Additional Strategies

There are additional strategies you can use to lower your inheritance tax in France. An entire industry of finance professional and estate attorneys exists around this specific point.

The most common strategies involve donating the "nue-propriété" of your house or apartment to your kids. If there is interest from the audience, please let me know and I can write an article on this process. Life Insurance is another strategy has specific inheritance benefits, yet is challenging for Americans due to the PFIC rules that apply for many of the underlined funds in French life insurance contracts.

If you are interested in learning more about money matters in France, please feel free to reach out to me at mybestmoneylife@gmail.com to set-up a consultation.

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Disclaimer: This guide is for informational purposes only and is not financial advice. Tax laws are subject to change. Please consult with a Notaire or tax professional in France for advice specific to your situation.