French Tax Laws: French Inheritance/Gift Tax changes

How do the 2007 French Inheritance/Gift Tax changes affect me? On the 13th of July 2007, a new law which makes considerable changes to existing French Inheritance/Gift Tax Laws, has been adopted by the French parliament to begin the 1st of January 2008.

What does it change? Inheritance Tax between married couples and those with a PACs (Pacte Civil de Solidarity) agreement on first death will no longer be applicable, before the limit was set at 76,000 Euros for married couples and 57,000 Euros for PACs partners. The allowance for children & parents of the deceased has now been increased from 50,000 Euros (per child) to 150,000 Euros (per child) Brothers & sisters of the deceased can now receive 15,000 Euros each before Inheritance Tax. Nephews & nieces of the deceased will also now be able to receive 5,000 Euros each before Inheritance tax. There isn't any Inheritance Tax between Brothers & Sisters who reside at the same address. The limit of the amount that can be left to a disabled person who is not a direct heir has been changed from 50,000 Euros to 150,000 Euros.

It is now possible under the new Gift Tax laws to donate 150,000 Euros per child every 6 years without incurring any Gift Tax. You are also able to donate 30,000 Euros to a family member (from their 18th Birthday) without incurring any Gift Tax.

What has not changed? In France, assets pass according to French succession law, rather than by will, and this favors any children of the deceased rather than the spouse (between 50% and 75% of the deceased's assets must pass to the children). PACS partners and unmarried partners have even fewer rights to the property. This can be circumvented, but if no action is taken to provide for the spouse, they are only entitled to 25%. Any unreserved balance can be left according to your will.

For UK residents, this rule will apply to the French property only. If you are a French resident, it applies to your worldwide assets, except for real estate situated outside France. Where assets are taxed in both countries, under the UK/France inheritance tax treaty, tax should be paid in the country where the property is located, and you can offset this against the tax due in the country of residence to avoid double taxation, even though the UK taxes the estate and the French tax the recipient.

If you are French resident, from a UK point of view, you will be regarded as if you were domiciled in France, because of the UK/France treaty mentioned above. Therefore, only your UK assets will be subject to UK inheritance tax, with an appropriate double tax credit in France for any UK tax paid. If you are UK resident and domiciled and own a property in France, the French property will be subject to UK IHT as part of your estate, and as it is located in France, it will also be subject to French succession tax, with an appropriate tax credit in the UK.

A few amendments to this law have already been proposed, and these details were only correct at the time of writing. The information is only provided as a guide, and if you need assistance in this area, you are strongly advised to seek the help of a specialist in this field as each individual case is different.