Inheritance Tax Planning in France

Part Two of Two

A Complete Guide for International Property Owners

This is the second of two linked guides on French inheritance and succession. It covers French inheritance tax in full, rates, allowances, and the particular exposure of unmarried partners followed by the principal estate planning strategies available to international owners, and the cross-border double taxation issues that buyers from outside France must navigate.

If you have not yet read Part One which covers the legal framework, ownership structures, matrimonial regimes, Brussels IV, and the estate administration process, we recommend starting there.

French Inheritance Tax - Droits de Succession

French inheritance tax is levied on the net value of assets received by each heir individually, calculated after deducting their personal allowance. The rate and allowance depend entirely on the relationship between the deceased and the beneficiary. France uses a progressive rate scale that can rise sharply for more distant relatives and unrelated beneficiaries.

Tax-Free Allowances by Relationship

Progressive Rate Bands for Direct Line (Children / Parents)

For a property valued at €1,000,000 inherited equally by two children, each child receives a €500,000 share. After deducting the €100,000 allowance, each has a taxable base of €400,000, on which the progressive rates apply. The resulting tax per child is approximately €69,000, a total inheritance tax burden across both children of around €138,000, or just under 14% of the property's value.

The €100,000 allowance per beneficiary per donor renews every 15 years. This means lifetime gifting making gifts to children during your lifetime can be an extremely effective tool for reducing the inheritance tax base, provided the 15-year clock has run before the death.

The Critical Position of Unmarried Partners

One of the starkest illustrations of the importance of French estate planning is the position of an unmarried partner who is not in a PACS. Such a person however long-standing the relationship is treated as an unrelated person for French inheritance tax purposes. They benefit from an allowance of only €1,594 and are then taxed at a flat rate of 60% on everything above that.

On a French property worth €500,000 left to a co-habiting partner with no PACS and no other planning, the tax bill would be approximately €297,000. A PACS confers full spousal exemption from droits de succession making it one of the most powerful and administratively simple estate planning steps available to co-habiting couples. A PACS can be registered before a notaire or at the mairie (Town Hall) and can be entered into in France or at a French consulate abroad.

Estate Planning Strategies for International Owners

Effective estate planning for a French property requires looking at the full picture: the ownership structure, the matrimonial regime, the existence of wills in both France and the home country, lifetime gifting strategies, and for larger estates the potential use of holding structures. The following are the principal tools available.

Every international owner of French property should have a French will (testament) drafted by a French notaire. While a foreign will may in principle be recognised in France, a French will registered with the Fichier Central des Dispositions de Dernières Volontés (the national will registry) makes the succession process significantly smoother, faster, and less costly.

A French will allow you to elect the applicable law under Brussels IV (if you are an EU national), specify who receives the quotité disponible (Available assets), appoint a legatee for your French property, and set out specific instructions. It is essential that your French will and any foreign will are coordinated, they should not contradict each other and should be carefully drafted to apply to French and non-French assets respectively without ambiguity.

Because the €100,000 per parent per child allowance renews every 15 years, a long-term gifting programme can substantially reduce or even eliminate inheritance tax on a French property. A couple with two children can together give up to €400,000 every 15 years (€100,000 from each parent to each child) entirely free of French tax.

Gifts of French property must be made before a French notaire and are subject to droits de donation (gift tax), which uses the same rate scale as droits de succession but with the same allowances. Gifts within the allowance are entirely tax-free and reset the 15-year clock for future giving.

A donation-partage (partition gift) is a specific type of lifetime gift that divides assets between children in a definitively binding way at the date of the gift meaning the assets are not brought back into account on death in the way that ordinary gifts can be. This provides greater certainty and is strongly preferred by notaires for family succession planning.

Démembrement de propriété splitting ownership into usufruit (Usufruct) and nue-propriété (Bare Ownership) is one of the most effective succession planning tools in French law. A parent can give the nue-propriété of a property to their children while retaining the usufruit, the right to live in or receive income from the property for life.

The value of the gift is calculated only on the nue-propriété, not on the full property value. This valuation is set by a statutory table based on the age of the usufructuary at the time of the gift:

On death, the usufruit extinguishes automatically and the children become full owners with no additional inheritance tax due on that transition, since the gift was already taxed at the time of the donation. If the property has appreciated in value since the gift, all that appreciation accrues to the children's nue-propriété entirely outside the taxable estate.

This table shows why démembrement gifting is most powerful when done early. A parent aged 55 who gives the nue-propriété pays gift tax on only 50% of the property's value. A parent aged 65 pays on only 60%. The sooner the gift is made, the more of the future growth is sheltered.

Where a property is held through an SCI, the gradual donation of shares to children using the €100,000 per parent per child allowance is administratively straightforward and does not require the formalities of transferring immovable property directly. Over a 15-year cycle, a couple can donate significant proportions of a valuable property portfolio without any tax cost.

Additionally, SCI shares can be valued at a discount typically 10% to 20% to reflect the illiquidity of a minority stake and restrictions on transfer in the company's status. This discount further reduces the taxable base of gifts and inheritances, though it is subject to challenge by the tax authorities if considered excessive.

French assurance-vie (life insurance with an investment element) is one of the most widely used estate planning tools in France. Sums invested in an assurance-vie contract pass to named beneficiaries outside the succession process (hors succession) and outside the réserve héréditaire, benefiting from their own more favourable tax treatment.

For international buyers, assurance-vie is particularly useful as a vehicle for providing the liquidity that heirs need to pay inheritance tax on illiquid real estate. A parent can take out a French assurance-vie contract and name their children as beneficiaries, ensuring the tax bill on the property can be met without a forced sale.

• Instruct a French notaire before or at the point of purchase to advise on the optimal ownership structure for your circumstances

  
  

• Ensure a French will is in place coordinated with any will in your home country

• Married couples should review whether their matrimonial regime is appropriate. A change requires a notarial act but is possible

  
  

• Unmarried co-habiting couples should consider a PACS to access full spousal exemption from droits de succession

  
  

• EU nationals should consider whether a Brussels IV election for their national law is appropriate

  
  

• Start the 15-year allowance clock as early as possible, the sooner you begin lifetime gifting, the greater the tax saving

  
  

• For properties held through an SCI, begin a structured share donation programme and document valuations carefully

  
  

• Consider French assurance-vie as a liquidity tool for meeting inheritance tax liabilities without a forced sale

  
  

• Review your estate plan every 10-15 years, or whenever there is a significant change in family circumstances or property values

Cross-Border Issues - Avoiding Double Taxation

For international buyers, French inheritance tax does not exist in a vacuum, it interacts with whatever inheritance tax system exists in their country of residence or nationality. The risk of double taxation is real, and while bilateral treaties mitigate this in some cases, they do not eliminate it entirely.

France's Network of Inheritance Tax Treaties

France has a relatively limited network of bilateral inheritance tax treaties compared to its income tax treaty network. Treaties exist with the United States, the United Kingdom, Germany, Switzerland, Belgium, Sweden, and Italy, among others. Most provide a credit mechanism: tax paid in France can be credited against the inheritance tax liability in the other country, so that the effective burden does not exceed the higher of the two countries' rates.

Buyers from countries with which France has no inheritance tax treaty including many Gulf states and certain Asian jurisdictions face the risk of double taxation on their French property. For these buyers, structural planning through an SCI or another appropriate structure takes on added importance.

UK–France Inheritance Tax Treaty

The UK - France inheritance tax treaty is particularly relevant given the large number of British nationals who own property in the French Alps and on the Riviera. The treaty generally provides that UK citizens pay French inheritance tax on French property, with a credit available against UK inheritance tax. Since UK inheritance tax rates (40% above the nil-rate band) are generally lower than French rates for non-direct-line beneficiaries, careful planning is required to ensure the combined burden is managed efficiently.

Post-Brexit, UK nationals should take particular care to review their estate planning, both the treatment of Brussels IV elections (discussed in Part One) and the continuing application of the UK–France treaty, which remains in force independently of Brexit.

Seek Cross Border specialist advise

Conclusion

France's inheritance system is sophisticated, protective of close family members, and potentially very costly for those who have not planned. For international buyers of luxury property in the French Alps or on the French Riviera, the consequences of inadequate estate planning can range from an unexpectedly large tax bill to a forced sale or a protracted family dispute that damages relationships for years.

The good news is that France offers an unusually rich toolkit for mitigating these risks: matrimonial regime planning, lifetime gifts, démembrement strategies, SCI structures, assurance-vie, and for EU nationals the transformative flexibility of Brussels IV. The key is to engage with these tools early, before the property is purchased, and to review your estate plan regularly as your circumstances evolve.

Halle International works exclusively with new-build and off-plan luxury properties in the French Alps and on the French Riviera, and we introduce our clients to qualified notaires and specialist cross-border inheritance advisers at the earliest stage of their property journey. We invite you to contact us to discuss how we can support not just your purchase, but your long-term ownership strategy.

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