Impending changes to French inheritance laws
By Graham Keysell - Topics: France, Inheritance Tax, Succession Planning, Tax, Uncategorised
This article is published on: 17th August 2015
In England, we are used to being able to decide who should inherit our assets when we die. However, once you are considered a French resident, the ‘Code Civil’ stipulates that a set proportion should go to your ‘protected heirs’ (i.e. your children).
For example, if you have two children, they are entitled to 2/3 of the value of your estate. It is only the remaining proportion that you have some control over. If you are not married, and there is no will, the entire estate will pass to the children.
Whatever your will might say (e.g. leaving 100% to your spouse or a friend), these ‘protected heirs’ can insist on receiving their percentage. It is possible to insert a clause in a will whereby your spouse has lifetime ‘use’ of the matrimonial home. They can also continue to receive income from any investments for life, but they cannot sell any assets, (or spend any money), destined to go to the children (e.g. money in a bank account).
Unmarried couples face a tax bill of 60% of any inheritance, after an allowance of the first 1,594 euros. The same applies to anyone you are not directly related to.
‘PACS’d couples have the same rights as husbands and wives and are not liable to pay inheritance tax.
Recent changes in legislation have improved the rights of the spouse to a certain extent, but the situation is still far from ideal.
The good news is that France has signed up to a recent EU law under which citizens of other countries will be allowed to opt for the inheritance laws of their country of birth. This is due to take effect from 17th August 2015.
Providing you have written a will stipulating that your estate should be disposed of under English law, you are at liberty to leave your assets to anyone you want (and in any proportion). This will take precedence over the Code Civil and completely eliminate the question of ‘protected heirs’.
It is worth mentioning that Scottish inheritance law has some similarities with the French ‘Code Civil’. Anyone born in Scotland would still have some restrictions on whom they could leave their estate to (although the limits are far more generous for spouses and it would almost certainly be preferable to take advantage of the new laws).
For reasons best known to themselves, the UK and Irish governments have not signed up to this EU legislation. Nevertheless, this in no way prevents UK citizens living in France taking advantage of the new rules.
If you have any assets (e.g. a bank account) in the UK, it is usually advisable for you to have both English and French wills. Whilst not compulsory, it does make the winding up of the estate far simpler (and cheaper!).
Wills do not need to be complicated and it is quite likely that a standard version for both English and French wills would suit your purposes. Anyone who would like to discuss this with me can contact me on firstname.lastname@example.org.
There are other factors to bear in mind before deciding whether it is in your interests to take advantage of the new legislation. If you have a ‘classic’ French will and are on good terms with your children, they can simply sign away their rights to the inheritance. Mentioning the new law may confuse the notaire in charge of winding up the estate.
Also, you could lose the valuable tax-free limits that your children would otherwise be able to take advantage of.
Personally, I believe the people most likely to benefit from the change in legislation are those who have children from previous relationships, those who want to leave money to their beneficiaries in unequal shares and those who want to leave money to people other than their direct descendants.
You should bear in mind that this new ability to leave your money to anyone you wish in no way affects the inheritance tax rates. As previously mentioned, there is no inheritance tax between spouses. However, after an allowance of €100,000, children will pay a sliding scale of tax (usually with the majority of the excess being taxed at 20%). If you leave your money to third parties, or charities, they can expect to pay 60%.
Assurances Vie policies are frequently used to avoid inheritance tax. Providing these are set up before age 70, each named beneficiary can inherit up to 152,500 euros, totally tax-free, and it is not considered part of the estate. Any sum in excess of this is taxed at a flat rate of 20%. This is particularly beneficial if you were leaving money to an unmarried partner, a charity, nieces and nephews, etc where they would avoid paying the 60% tax!
This is one of the reasons that these policies account for the majority of the investments in France (as well as being the nearest thing the French have to a UK ‘tax-free ISA’).
This report is intended simply as a summary of some aspects of French succession law and inheritance tax. It is based on my understanding of current legislation, which may be subject to change. No liability can be accepted for any change of interpretation or practice relating to any tax or legislative measure that may affect the accuracy of the content.