For American expats with property in France, inheritance planning is a crucial but often overlooked aspect of financial and legal preparation. France has strict inheritance laws and a unique tax system that affects how estates are passed on to heirs. This article explores how French inheritance tax works, using a hypothetical scenario: an American citizen who owns a 1 € million property in France and wishes to pass it on to their child living in the US.
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Understanding inheritance law in France
French inheritance law is governed by a concept known as forced heirship. This means that a certain percentage of the estate must go to the deceased’s direct descendants (children), regardless of what is written in the will. As a result, you cannot freely distribute your estate unless you have no children.
Additionally, the location of the property determines the applicable inheritance law. Real estate located in France will be subject to French inheritance law, regardless of the nationality of the deceased or the heirs.
> People who read this article also read: Avoiding double taxation: A guide to the France-US tax treaty for American expats
The 1 € million property example
Let’s consider the case of Marie, an American citizen who owns a 1 € million property in the southwest of France. She has one adult child, Alex, who lives in California. Marie’s goal is to pass the French property on to Alex.
Here’s how this inheritance scenario would play out under French law:
Step 1: Determining the gross value of the estate
In Marie’s case, her French estate consists solely of the 1€ million property. She has no mortgage or outstanding debts linked to the property, and there are no additional French assets.
Step 2: Calculating the net taxable estate
Let’s assume there are no liabilities or loans to deduct, so the net estate remains 1 € million.
Step 3: Applying allowances
As Marie is passing the property to her child, Alex qualifies for a tax-free allowance of 100,000 €, which is the standard parent-to-child exemption in France.
This means the taxable inheritance for Alex is 900,000 €.
Step 4: Applying inheritance tax rates
Inheritance tax rates in France are progressive and depend on the relationship between the deceased and the beneficiary. For children, the rates range from 5% to 45%.
Here’s how Alex’s tax is calculated:
- 5% on the first 8,072 € = 403.60 €
- 10% on the portion from 8,073 € to 12,109 € = 403.60 €
- 15% on the portion from 12,110 € to 15,932 € = 573.30 €
- 20% on the portion from 15,933 € to 552,324 € = 107,278.20 €
- 30% on the portion from 552,325 € to 902,838 € (i.e., 900,000 €) = ~104,308.50 €
Total inheritance tax owed: approx. 213,000 €
That’s nearly one-fifth of the property’s value, payable by the heir.
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Calculating your French inheritance tax liability
To understand how inheritance tax in France is calculated, there are four primary steps:
- Determine the total value of the deceased’s gross assets – This includes:
- Real estate
- Bank accounts
- Investments
- Personal items (cars, jewellery, art)
- Business assets
- Life insurance exceeding exemptions
- Deduct outstanding liabilities and debts, such as:
- Mortgages
- Personal loans
- Taxes owed
- Funeral costs
- Apply allowances, depending on your relationship with the deceased:
- 100,000 € for children
- Lower amounts for other relatives or non-relatives
- Apply the tax rates to the taxable share of each heir, based on their relationship and the amount they inherit.
It’s strongly recommended to consult a notaire or a legal advisor in France to ensure compliance and accuracy in these calculations.
Exemptions under French inheritain law
Certain beneficiaries may benefit from full or partial exemptions from inheritance tax in France:
- Spouses and PACS partners (civil partners) are fully exempt from inheritance tax.
- Siblings can also be exempt if:
- They were single, divorced, or widowed at the time of death
- Over 50 or disabled
- Had lived with the deceased for at least 5 years
There are no exemptions for children, though the 100,000 € allowance provides significant relief.
How to pay inheritance tax in France
If you inherit property or other taxable assets in France, you are required to submit a declaration de succession (inheritance declaration).
This must be submitted to the Service des Impôts (French tax authority) closest to the deceased’s last residence. If the deceased lived outside France, the declaration must be filed with the Non-Residents Collection Office.
The deadlines are:
- 6 months after death if the death occurred in France
- 12 months if the death occurred outside of France
Inheritance tax must be paid within this deadline.
If the estate includes non-liquid assets (e.g., property, art), the beneficiary can request to:
- Defer payment or
- Pay in instalments (up to 3 years, or 10 years for businesses)
Interest will apply during deferred payments.
Payment methods:
- Bank transfer
- Credit/debit card
- Cheque
- Cash (limited to 300 €)
Failure to comply may result in penalties and interest charges.
> People who read this article also read: 3 tax benefits of owning real estate overseas
Additional considerations for American expats
US citizens should keep in mind the potential for double taxation. Although France and the US have a tax treaty, it’s crucial to work with a cross-border tax expert to avoid being taxed twice.
- Life insurance taken out in the US may still be counted toward the estate under French law if it exceeds certain thresholds.
- US heirs may still have to report and possibly pay taxes on the inherited property depending on the IRS rules.
Planning ahead: Tips for expats
- Write a French Will: A French will can help ensure your wishes are respected under local laws.
- Speak with a Notaire: Notaires are specialised legal professionals who can guide you through the complex inheritance process in France.
- Consider a Life Insurance Policy: Tailored life insurance can help cover potential inheritance taxes.
- Explore Gifting Options: Gifting assets during your lifetime (with tax exemptions every 15 years) can reduce future inheritance liabilities.
FAQ: Inheriting a property in France
Do I have to pay inheritance tax in France if I live in the US?
Yes, you may still be liable for French inheritance tax if you inherit property located in France, even if you’re a US resident. France taxes the inheritance of French assets regardless of the beneficiary’s country of residence. However, a tax treaty between France and the US helps avoid double taxation.
How is French inheritance tax calculated?
French inheritance tax is calculated based on:
- The net value of the estate (after debts and liabilities are deducted),
- The beneficiary’s relationship to the deceased, and
- The value of the share they receive.
Each beneficiary is taxed individually, not the estate as a whole, and tax bands and exemptions apply depending on the relationship.
What is the inheritance tax rate for children inheriting property in France?
Children benefit from a 100,000 € tax-free allowance (per parent). After this threshold, the inheritance tax rates are progressive:
- 5% up to 8,072 €
- 10% from 8,073 € to 12,109 €
- 15% from 12,110 € to 15,932 €
- Up to 45% on amounts exceeding 1,805,677 €
Are there exemptions for spouses or civil partners?
Yes. Under French law, spouses and PACSed (civil union) partners are fully exempt from inheritance tax, regardless of the amount inherited.
How do I declare and pay French inheritance tax?
You must file a déclaration de succession (inheritance tax return) with the French tax authorities within:
- 6 months of the death if it occurred in France, or
- 12 months if the death occurred abroad.
Tax can be paid in cash, cheque, credit card, or bank transfer. If over 50% of the estate is non-liquid (e.g., real estate), you can request payment in instalments or deferment.
What happens if I don’t pay inheritance tax on time?
Late payment of inheritance tax can lead to interest charges and penalties. Interest is usually charged monthly, and additional penalties may apply after significant delays. It’s crucial to meet the deadlines or apply for deferred payment if necessary.
Final notes
Inheriting property in France, especially a valuable asset like a 1 € million home, comes with both financial responsibilities and legal requirements. For American expats, navigating the French inheritance system can be complex, but with proper planning, it’s manageable.
Understanding the allowances, tax rates, and administrative obligations helps ensure that your legacy is protected and that your heirs are prepared.
If you’re planning to pass on French property to loved ones abroad, now is the time to consult a professional and put your plan in place.
