SUCCESSION LAWS IN FRANCE
This is an issue which is of prime concern to many purchasers of a property in France and some planning at the time of purchase is strongly advised. Recent changes in European law (JUNE 2012) have opened up far more freedom in the choices that are available to foreign purchasers. It will soon be possible to opt for the laws of the country of citizenship to apply at time of death rather than the laws of succession which apply in France to French nationals.
To understand the implications of this it is necessary to have some understanding of how succession in France would be applied should no will or succession planning be in place.
For anybody residing in France, their worldwide assets are considered to fall into their estate and previously would have been dealt with under the French succession laws. The sole exception would have been real estate held outside of France which would fall under the laws of the country where that property was held. For anybody residing outside of France but owning a property in France, only assets held in France would have fallen under the French succession laws.
Under French law direct descendants and / or ascendants are considered to be privileged with regard to succession and cannot be cut out of a will. This law relates to all immovable property held by the deceased and includes all children of the deceased even if they are the product of a previous marriage.
- For anybody considered to be residing in France, their worldwide assets are considered to fall into their estate and would be dealt with under the French succession laws. The sole exception would be real estate held outside of France which would fall under the laws of the country where that property was held.
- For anybody residing outside of France but owning a property in France, only assets in held in France would fall under the French succession laws.
If married:
- If there are children and they are all descendents of the marriage then on the death of the first party the deceased's share would be split between his or her children and the surviving spouse. The surviving spouse would have the choice of the usufruct of the property or 1/4 of the deceased's share.
- If there are children from a previous marriage, adopted children or illegitimate children, then the spouse would not be able to make the choice of usufruct and would instead inherit 1/4 of the deceased's estate.
- If there are no children the parents of the deceased would have a claim on the estate amounting to 1/4 each. The surviving spouse would inherit the balance.
In the case of principal residence the surviving spouse has the right to live undisturbed in the property and have use of all the furnishings within.
Under current regulations the surviving spouse is exempt from inheritance tax on their share of the estate.
If not married:
- On the death of one or other party the deceased's share of the property will pass to his privileged inheritors and not to the other party. The inheritors would normally have the same rights over the property as the other party and can force a sale or co-habit the property.
There are a few ways of avoiding this problem. The property can be purchased using an SCI, (see below) or by the inclusion of a tontine clause at the time of purchase. Under this system the property would be inherited by the co-owner at the time of death of the other party. If the co-owner is not part of the family however, inheritance tax could be as much as 60%. The privileged inheritors would effectively be disinherited by this process.
P.A.C.S:
Unmarried couples tied by a civil pact of solidarity (PACS) are now also exempt from inheritance tax. The surviving partner of the deceased tied by a civil pact of solidarity now benefits from a tax free inheritance on the portion of the estate as bequeathed to them by will.
Under earlier legislation it had already become possible to opt for a change of marital regime called "Communauté Universelle" through which taxes are not incurred on the death of the first spouse. All assets covered by the "communauté universelle" are considered to belong to a common basket which is owned mutually by both parties. On the death of the first party the surviving spouse assumes ownership of the basket in its entirety. The resulting inheritance is regarded as invisible to the fiscal authorities.
If no "communauté universelle" is in place the surviving spouse would share the estate with the offspring of the marriage. However, if there are children from outside of the current marriage, they would be able to claim their share from the estate at the time of death. The children from the current marriage would only inherit their share after the death of the surviving spouse.
Another option has been for couples to form a tontine under which system the ownership of the property would pass in its entirety to the surviving member of the partnership. This can also be adopted by non married couples although they should also have a "PACS" in place otherwise they will incur taxes at time of succession of 60%. Unmarried couples tied by a civil pact of solidarity (PACS) are currently exempt from inheritance tax. The surviving partner of the deceased tied by a civil pact of solidarity now benefits from a tax free inheritance on the portion of the estate as bequeathed to them by will.
Since the laws have been changed exonerating surviving spouse of succession taxes the effect is now similar to that of the "Communauté universelle"
This is a specific type of company set up with the purpose of owning immovable property. If the shareholders of the SCI are not resident in France the shares of the SCI are treated by law as movable property and would fall under the laws of their country of residence. This means that a will can be made to leave the shares to any party thus avoiding the laws which govern privileged inheritors in France. It is worth being aware that an SCI can be considered as a commercial company by the fiscal authorities and it may incur taxes on the perceived rental value of the property. There are also running costs and accounts that need to be kept for the French fiscal authorities.
With the European directives of June 2012 it should be possible for EU citizens to opt for the succession laws of their own country to be applied at the time of death. They can use a will in that country to regulate their succession requirements thus being able to skirt around the privileged direct succession laws explained above. It may take time for the impact of these laws to filter fully into the French legal system but they must be implemented by the end of June 2015.
BEWARE !!!
When planning for succession it is necessary to consider the fiscal implications!
Direct heirs:
Under new legislation direct heirs (living child or coming in representation of a deceased parent, parent, grandparent) will benefit from a tax free allowance of 100 000€ of their share of the inheritance. Over the tax free allowance the balance is taxed on a sliding scale as laid out to the right.
| Tax rate after abatement | RATE |
|---|
| Less than 8.072 € | 5% |
| Between 8.072 € and 12.109 € | 10% |
| Between 12.109 € and 15.932 € | 15% |
| Between 15.932 € and 552.324 € | 20% |
| Between 552.324 € and 902.838 € | 30% |
| Between 902.838 € and 1.805.677 € | 40% |
| Greater than 1.805.677 € | 45% |
Non direct inheritors:
Non direct inheritors are taxed at a flat rate of 60%! It is important to bear this in mind.
A married couple have a child through their common marriage and each have a child through a previous marriage. The property is held equally in both names. The property has a value of 600 000€
Under traditional French law on the death of the first spouse the surviving spouse would inherit 25% of the deceased's share, their common child would inherit 37,5% and the child of the deceased spouse would inherit a 37,5%.
Usually the surviving spouse would take their 25% share in the form of "usufruit" and the children would inherit their share in the form of "nu-proprieté". The value inherited by each of the two children would have a value of 112 500 €. Each of them would be due to pay tax of roughly 866 €. The value of the "usufruit" is 75 000 €
The surviving spouse retains usage of the property for the remainder of their life. He/she can rent the property should he/she choose and retain all of the income. If he/she were to sell the property he/she would need to get the permission of the two children who are now shareholders. They would be paid their part of the proceeds at the time of sale.
On the death of the surviving spouse the "usufruit" is considered to have expired and no longer has any fiscal value. The remaining half of the property is split two ways. Assuming that the value of the property has remained unchanged the common child will inherit a further 25% of the property and the last deceased child will inherit 25% value 150 000. After an abatement of 100 000 euros each of them will be due to pay a tax of roughly 8194 €.
| Inheritor | 1st Succession | 2nd Succession | Share of
Ownership | Approx
Taxes |
|---|
| Child of first deceased |
Inheritance 37.5% of half share "nu propriéte", fiscal value 115.000 € |
Expired usufruit = 12,5 % of half share, fiscal value = 0 € |
25% |
866 € |
| Child of last deceased |
|
Inheritance 25%, fiscal value 150.000 € |
25% |
8.194 € |
| Child of common mariage |
Inheritance 37,5% of half share "nu proprieté" fiscal value 115.000 € |
Inheritance 25% fiscal value 150.000 € + expired usufruit = 12,5 % of half share fiscal value = 0 € |
50% |
9.060 € |
If there is an English will, "Tontine" or "Communauté universelle" in place leaving all of the property to the surviving spouse no taxes are paid at time of the first death. On the death of the surviving spouse if the intention is to leave the property equally to the three children through an English will the following table shows the outcome.
| Inheritor | On death of surviving spouse | Share of
Ownership | Approx
Taxes |
|---|
| Child of first deceased |
Inheritance 33% taxed at 60% rate because it is no longer a direct blood succession. No abatement. |
33% |
120.000 € |
| Child of last deceased |
Inheritance 33% value 200.000 €, 100.000 € abatement |
33% |
18.194 € |
| Child of common mariage |
Inheritance 33% value 200.000 €, 100.000 € abatement |
33% |
18.194 € |
It seems attractive at first glance to enjoy the freedom of being able to leave the property to whoever you choose but as illustrated above it is essential to be aware of the fiscal consequences.
Note : All information on these pages are set out and intended as a guideline only and should be verified with a notaire, advocate or lawyer should you wish to take any firm advice relating to any legal matter.
