LEGAL GUIDE TO

French SuccessionLaw andInheritance Tax

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succession law

There have been many changes to Frenchand European-wide inheritance rules overthe past few years. The information belowsets out the main concepts that are likely tobe relevant.

Subject to limited restrictions, English lawallows you to leave your estate to anyone ofyour choice. In France, protected heirs –normally your children – will have a fixed rightto at least a minimum interest in your estate.Your surviving spouse is a protected heir toa certain extent. Other relatives or unmarriedpartners are not protected heirs. Thus youcannot cut your children (which includesadopted children and those from previousrelationships) out of your estate underFrench law. The age of the children is of norelevance. Step-children are not protectedheirs.

If at the date of your death you live in France,all of your worldwide assets (except landand buildings outside France) are subject tothe rights of protected heirs. If you are notdomiciled in France, then the position maybe different. What constitutes ‘domicile’ forthese purposes is an issue that needs to beaddressed on a case by case basis – notleast because the English definition of theword ‘domicile’ differs from the Frenchdefinition. Certain other jurisdictions, such asSpain, do not make the same distinctionbetween land and buildings and otherassets, so again a more detailed analysiswould apply if you live in Spain.

The minimum amount due to protected heirsis known as the legal reserve, the remainderbeing the disposable portion. If a childpredeceases, having left children of his own,those children would share the amount thatwould have passed to their parent had theysurvived. The legal reserve must go to theprotected heirs, regardless of the wishes ofthe deceased. This is as follows:

• One child: the reserved portion is half ofthe estate

• Two children: the reserved portion is two-thirds of the estate divided equally

• Three or more: it is three-quarters of theestate divided equally between them.

If a child predeceases leaving no children ofhis own, he is treated as not having existed,and his share is distributed between thesurviving children of the deceased. If thereare no children, but there is a survivingspouse, then the spouse is able to take all ofthe deceased’s estate, in preference to thedeceased’s parents.

There are circumstances where people canrenounce future interests. There are variouspossibilities, including the right to enter intoa formal agreement with the family underwhich you can, as a potential beneficiary,forego any inheritance to which you mayhave an entitlement in the future (for examplein favour of your own children). Any steps torenounce are very burdensome.

There are specific formalities to address forsuch issues, and as such it would beimportant to consider carefully theprocedures as well as the aim, to establishif such an option would be suitable.

Another area of concern is where a couplebuy’s a property in France, and one or bothof them dies leaving minor children domiciledin England. For various technical reasons, itcan prove difficult to sell, mortgage, let orotherwise dispose of the property until theyoungest child turns 18. It would benecessary to apply to the English court toobtain authority to dispose of the property.

Another difficulty is where a couple remarries,having children from previous marriages whodo not get on with their new stepfather orstepmother. On the death of the first spouse,the survivor ends up owning the propertytogether with the children of the partner’sformer marriage. Possible methods ofavoiding these difficulties include purchaseen tontine and purchase via a Frenchcompany. If a property is owned en tontinethe entire property will pass to the survivor, asif it were owned in the survivor’s sole namefrom the moment of purchase. None of thesemethods will necessarily give an absoluteguarantee that the survivor will inherit all inplace of the children – there may often besituations where those children couldchallenge on the grounds that they have beendisinherited and not accorded the rightsgranted to them by French law.

Lifetime gifts

For the purposes of calculating thedisposable and reserved portions, all giftscan be added back into the estate regard-less of how long before death the gifts weremade, and regardless of the intention of thegifts. Having calculated the reserved portion,if the value of the estate is inadequate, thena clawback claim can be made against thegifts. The claim is made against the mostrecent gift first, and so on. Gifts couldinclude gifts made into trust. In other words,gifts made years before the donor dies couldbe reclaimed under French law.

Matrimonial property rights

Under French law a marrying couple enterinto a matrimonial contract which will affectthe way their property is owned. Differentforms of contract exist, making the positionunlike that in the UK.

Separation of assets (séparationde biens)

Under this system, any asset registered inone spouse’s name is considered to beowned by that spouse. Any assets registeredin joint names are considered to be ownedequally. A couple married in the UK (or inmost other common-law countries such asthe Republic of Ireland) are considered to bemarried under this regime in French law indefault of a specific marriage contract. Itmeans that on the death of one spouse, theprotected heirs can make a valid claimagainst all assets registered in the name ofthe deceased spouse; and 50% of manyassets registered in joint names.Nevertheless, various guarantees as tocompletion must be included in this form oftransaction. There must be ample protectionfor the buyer, to ensure that the propertybeing purchased will actually be completed.

Universal community(communauté universelle)

This system involves all of the assetsbelonging to the couple (usually with theexception of certain personal items such asclothing) being placed in communityownership. A British married couple can

Ownership en tontine

A tontine clause works to ensure that thesurvivor of joint owners will own the houseabsolutely. It can only be inserted at the timeof purchase and cannot be added inafterwards. This is rarely used in Franceother than by British couples, and you mayhave to be very insistent with the notaire whomay regard it as a fraud against yourchildren, even though it is perfectly legal. Ingeneral, if tontine ownership is the mostsuitable option for you we will be able toreassure the notaire that we have explainedall of the advantages and disadvantages ofowning property in this way. Under a tontine,the surviving spouse is deemed to haveowned all the property from the beginningand takes it all. The survivor then hascomplete freedom to dispose of the propertyas he or she wishes.

However the sale of a property when bothparties to the tontine clause are alive is onlypossible if both consent; if one declines tosell, the other cannot force the sale. In theevent of a matrimonial dispute, a court canhave difficulty making an order in relation tothe property because so long as both partiesto the tontine are living, there is uncertaintyas to who is the owner. A court couldtherefore only order a sale by both parties.

As to the French inheritance tax position, ifthere is a large difference in the ages of theparties to the tontine, (or if there are otherreasons whereby one party has a reducedlife expectancy, or if the parties contributeunequal shares of the purchase price), theFrench tax authorities might try to classify thetontine as a gift and tax accordingly. Thechildren of the first to die may also use sucha difference in life expectancy as a reason tochallenge the tontine structure.

On the death of the second spouse thechildren of that spouse will inherit. If they arechildren of both spouses they will, in effect,have “lost out” as they will receive their tax-

enter into such a contract in relation to theirFrench property. They may also choose toinclude a special clause which allows allFrench assets to pass on the first death to thesurviving spouse without the payment ofFrench inheritance taxes, thus effectivelyavoiding French succession law. It should benoted that a change of matrimonial regime isnot effective against the rights of children ofprevious relationships.

There are various other forms of matrimonialregime in France. The two referred to aboveare those most commonly relevant to UKnationals with property in France.

Joint ownership of property

There are two ways to own French propertyjointly:

• en indivision (tenancy in common); and

• en tontine (similar to a joint tenancyunder English law)

It is very important to appreciate thesignificant differences of these methods ofownership.

Ownership en indivision

You each own your half (or other specifiedamount) of the house, which on your deathdevolves according to French successionlaw. This is how most French lawyers putyour property into joint names in default ofspecific instructions to the contrary, althoughit can have major disadvantages. If a coupleowned property en indivision and thedeceased had children from a differentrelationship, the survivor would end upowning jointly with step-children. This may ofcourse be entirely what you wanted – forexample where each had two children fromprevious relationships, then on the death ofboth of them the French house could – withsuitable estate planning – be held jointlybetween the four in equal shares.

ownership

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The Englishdefinition of theword ‘domicile’differs from theFrench

Under French lawa marrying coupleenter into amatrimonialcontract whichwill affect the waytheir property isowned, this differsto the UK

succeed to a tenancy in the name of thepartner where that partner dies or deserts thehome; they can be jointly liable for debtsincurred by either of them for their daily andhousehold needs; they can have a jointentitlement to French Social Security andother benefits.

It should be noted that the PACS does notconfer any additional inheritance rights on thesurviving partner and other steps such astontine ownership will still need to be taken toensure that the property passes to the survivoron the first death. Only French residents orFrench nationals can complete a PACS.

Up until recently, France has not recognisedan English Civil Partnership Act agreement(CPA), and therefore a same sex couplehaving completed a CPA in the UK would havesuffered substantial discrimination in relationto assets in France or passing under Frenchlaw. This position has now changed, such thatno inheritance tax will be applied to any assetspassing under French law between partnershaving completed a CPA.

Furthermore, it should be stressed that just asfor the position under a PACS, the survivingpartner under a CPA does not take anyautomatic rights of inheritance from his or herdeceased partner. Thus specific measures willneed to be anticipated to allow for thesurviving partner to inherit, such as Wills,inclusion of a tontine clause in the purchasedeed, constitution of a company or such otheroptions as may be suitable. Given the adventof same sex marriages, it is likely that CPAagreements will be less relevant.

free allowance (abattement) only in the estateof the second parent to die instead of receivingan allowance in the estate of each parent. Thispoint is unlikely to be of concern if the propertyin France is only of a moderate value.

If the second person to die had no children oftheir own, and intended simply to leaveeverything back to the children of the first todie, then they will have been substantiallydisadvantaged – had they inherited from theirnatural parent, then preferential tax rateswould have applied, yet by inheriting from theirstep-parent they would have to pay Frenchinheritance tax at 60%.

The situation is not the same with anunmarried couple: while the tontine would stillwork to pass the property to the survivor, theinheritance tax position would not be as for asurviving spouse.

Unmarried couples

Unmarried couples have the major problem ofinheritance tax being applied at a rate of 60%with the minimum tax-free allowance onanything that the survivor inherits from thedeceased.‘PACS and CPA

The pacte civil de solidarité, or PACS, is acohabitation agreement for unmarriedcouples, whether a same-sex or heterosexualcouple. It has been in force since 1999.

There is no inheritance tax on the survivor ofa couple in a PACS; they will be allowed to

sundry matters

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Unmarriedcouples havethe majorproblem ofinheritance taxbeing appliedat a rate of60%

France willnow recognisean English CivilPartnershipAct agreements

Wills

If you die without an English or a French Will,your estate devolves under the French laws ofintestacy. If you leave children orgrandchildren, they will receive all of yourassets, except that your spouse has a lifeinterest (and can use the income) in onequarter of the estate, or may take one-quarterabsolutely, depending on the circumstances.If there are no children, then the assets willpass to a surviving spouse, parents,grandparents, brothers, sisters, aunts etc. Therights of a surviving spouse do not apply ifthe couple are divorced or legally separated.

By virtue of certain international legislation,British Wills are valid in France, although it maybe preferable to complete a separate FrenchWill for your French estate (and again this maybe your whole estate if you move to Francepermanently). It is usually advisable to have twoWills if you have assets in the UK and in France.Trying to prove a French Will in the UK, or anEnglish Will in France may mean that theprocess will be slower and more expensive.The concept of probate does not exist inFrench law and property passes ‘automatically’on death to the heirs. Nor does Francerecognise trusts, so as well as translation of thedocument into English, the notairemay requireclarification of the actual effect of the Will.

You should always use lawyers experiencedin French law and English Law to make yourFrench Will; do not try to make a home-madeWill as such documents often turn out to bedefective. If your Will is only to cover your Frenchassets, this must be made crystal clear in thenew Will; otherwise it may read as being your“last will and testament” covering all assetsworldwide. It is important to consider variouspoints of French, English and international lawwhen your Wills are being prepared, to ensurethat they will be completely valid: indeeddepending on their form and content, issuessuch as how they are written, whether theyare witnessed and where you are when theyare completed, can have an impact onwhether they are in fact valid.

It is also important that the two Wills do notoverlap, and that one does not revoke theother. We have detailed experience inpreparing French and UK Wills, and indeedare happy to work alongside your ownexisting UK solicitors if you would rather theykeep your UK Wills. We would of course alsobe delighted to prepare both your Englishand French Wills for you.

The succession process

If there is an inheritance tax liability a ‘déclarationde succession’ must be filed within 6 monthsof the death (12 months if the deceased diedoutside France) to avoid possible tax penalties.

If the deceased was deemed UK domiciledon death, then the notaire will require a Grant

of Probate, which itself would need to betranslated for use in France.

Company purchase

Shares are not classed as real property, evenif the company owns real property.Consequently in limited circumstances apossible way to avoid the rules of Frenchsuccession law applying to the estate of anon-French domiciliary is to place all Frenchreal property into a corporate structure.However there are potential disadvantagesto this form of ownership of which you mayneed to take account. You should thereforeonly consider this form of ownershipstructure with full advice beforehand toensure it is the most suitable option. Therecan be a number of potential tax problemsarising from such structuring.

If you own shares in a company which ownsa French house, you do not own a house inFrance, the company does. All you own arethe shares in the company. Therefore, whenyou die, the ownership of the house does notchange; it is the shares which changeownership, and succession law applies tothese shares as items of personal property,so that they will pass in accordance with thesuccession law rules of the country whereyou are domiciled, or permanently residentup to the time of your death.

However it is important to note that while thestrict French inheritance rules can normally beavoided, so that the shares can be left toanyone, French inheritance tax is still payableon them as if there were a legacy of Frenchreal property to that beneficiary. Thus if thebeneficiary is not related to the deceased heor she will have to pay inheritance tax at 60%against the value of the proportion of theproperty that the shares represent.

Purchasing through a non-Frenchcompany

Rarely will it be suitable to buy a Frenchproperty through a UK company. There are

many tax disadvantages, including the factthat a UK company cannot be ‘fiscallytransparent’ and so will always be subject tocorporation tax. There are often adversecapital gains tax consequences when theproperty is sold. Care must be taken to avoidthe imposition of an annual 3% tax charge,calculated by reference to the value of theFrench asset. You will also be subjecting thecompany to dual accounting and taxdeclaration obligations.

Shareholders who have the use of theproperty may be liable to tax on the “benefitin kind”.

UK resident purchasing in aFrench company

The use of a commercial company, whichwill be subject to French corporation tax, willhave consequences similar to those for a UKcompany. There are however a number ofFrench forms of company that are nottreated as commercial trading companies.Most commonly known among these is theSCI (société civile immobilière), which isfiscally transparent, so that liability for tax onthe company’s income and gains falls on theshareholders. The main advantages of usingan SCI, if a company has to be used at all,are that:

• French succession law is avoided if theshareholder dies domiciled in the UK

• the company is not subject to the annualminimum payment of French corporationtax and the shareholders benefit from thefavourable tax treatment of capital gainsrealised by individuals.

However care needs to be taken from a UKperspective – the shareholders should checkwith their local tax office in the UK toestablish how any revenue would beassessed to UK tax.

French inheritance tax is paid by eachbeneficiary (not by the deceased’s estate)by reference to the value received afterdeduction of all liabilities. Rates andallowances vary between each class ofbeneficiary. This means that where adeceased’s estate is split between say,surviving spouse and children, or perhapschildren and step-children, then the amounteach party would inherit may varysubstantially, as the levels of the tax-freeallowance and the rates of tax applicablecan be completely different.

If you die domiciled in France, Frenchinheritance tax is payable by eachbeneficiary on their share of your worldwideassets.

If you die domiciled outside France, thenonly your assets in France are liable toFrench inheritance tax.

A transfer on death between spouses andmembers of a PACS or a CPA is exemptfrom inheritance tax.

French inheritance tax is due on theregistration of the declaration de succession.But delays or payment by instalments can beobtained from the French Revenue, ifnecessary, although interest will be charged.French inheritance tax varies from 5% to60%, depending on the proximity ofrelationship between the deceased andbeneficiary. The tax is personal to eachbeneficiary, and the rates and allowancesvary between different classes ofbeneficiary.

The current tax tables are maintained on ourwebsite: www.ashtonkcj.co.uk/france

Surviving children and parents

The rates of French inheritance tax payableby surviving children or surviving parents willvary between 5% and 40%, the calculationbeing made on a stepped scale byreference to the value of the legacy eachbeneficiary inherits.

The thresholds for the tax bands areregularly updated in the annual Frenchfinance legislation. We retain a copy of the

current tax bands, along with the amount ofthe initial tax-free allowances which are alsoreviewed annually.

This information is kept up to date on ourwebsite: www.ashtonkcj.co.uk/france

It should be noted that children and step-children are not treated in the same way.Unless the step-children have been adoptedby the deceased parent (which is not alwayspossible, and we can discuss this with you)then any legacy they may take wouldotherwise be subjected to the maximum rateof inheritance tax in France, as they wouldbe considered strangers in blood.

Other beneficiaries

After an initial tax free allowance (which issubstantially lower than that offered tosurviving children) brothers and sisters arecurrently taxed at a rate of 35% on the firstband of an inheritance, and 45% on theremainder. Relatives to the fourth degree arecharged at a flat rate of 55% with a tax-freeallowance that is again lower than thatoffered to siblings. Relatives above the fourthdegree or other beneficiaries who are notrelated to the deceased by blood ormarriage pay a maximum rate of 60% with aminimum level of tax-free allowance.

Lifetime gifts

Lifetime gifts may be a tax-efficient way ofdisposing of your assets. Rates of tax andallowances are generally the same as forinheritance except certain allowances (suchas that available to brothers and sisters), andthere are certain other allowancesdepending upon the relationship betweendonor and donee. Furthermore, in the eventof a lifetime gift, there is a tax liability on asurviving spouse or the survivor of a couplehaving completed a PACS, which differs fromthe position on death.

EU succession rules

The European Union has been working tosimplify inheritance regulations across theEU, given the ever-increasing numbers ofpeople who have estates spread overmultiple jurisdictions.

Electing to apply for English law (or the lawof some other country of which a person isa natural – Scottish law, for example, iscompletely different in this area) to aperson’s estate in France would go muchfurther than just allowing one to avoid Frenchsuccession rules. Application of Englishrules for administration of estates might wellprove complex for some notaires. Theregulation does not apply to gifts madeduring a person’s lifetime. Nor does it haveany impact on the tax position: if 60%inheritance tax would have applied on alegacy made outside of the EU SuccessionRegulation, so it will under it.

There are limited circumstances in which theRegulation can offer an option for Frenchestate planning purposes. It is not, though,a panacea.

inheritance tax

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