How To Reduce Your Inheritance Tax To Zero

How to Reduce Your Inheritance Tax to Zero


PARLER PARIS: PARIS PROPERTY INSIDER


Enhanced web-edition online at:
/parlerparis/property


September 05, 2002


A QUICK GUIDE TO FRENCH INHERITANCE TAXES


Dear Paris Property Insider Reader,


I often talk about the differences between France and other countries
(especially the United States) when it comes to real estate issues. But
you know two things you can’t avoid no matter where you live? Death and
taxes (although you can severely reduce the amount of tax you
pay…keep reading.) Any discussion about buying property here should
necessarily involve a discussion of both issues (see last week’s
article about France’s inheritance laws for a refresher:
/parlerparis/property/inheritance.html).


While inheritance taxes exist in France, as they do elsewhere, the
system itself is different. In the U.S. and Britain, it is the estate
that pays taxes when property is transferred after a person’s death. In
France, inheritance taxes are paid by the beneficiaries. (Note: if you
are domiciled in France at the time of your death, your beneficiaries
will pay French inheritance taxes on all of your assets, worldwide. If
you’re domiciled outside France, they will only be taxed on your assets
in France.)


Similar to French laws of succession, inheritance tax rates vary
according the degree of relation the beneficiary had to the deceased.
Children and spouses pay the least (as little as 5%), the rate
increasing (to as much as 60%) as the relationship between beneficiary
and deceased becomes more distant. The rate is also based on the value
of the property and allows for a tax-free allowance (see the tax rate
table at the end of this article). Spouses and children receive a
76,000 euro and 46,000 euro exemption respectively; more distant
relatives and non-relatives are given a 1,500 euro exemption.


For example: for an estate valued at 300,000 euro, where there is a
surviving spouse and two children, the value of the estate would be
reduced by the widow’s 76,000 and the children’s 92,000 (46,000 x 2).
The taxable value of the estate would then be 132,000 euro.


Inheritance taxes are unavoidable, but there are a couple of ways to
help reduce the amount of taxes your beneficiaries will pay on your
property in France. You might consider making a lifetime gift of the
property. While the tax rates and allowances are generally the same for
a recipient of a lifetime gift, the tax rate will be reduced by 50% if
you are under age 65 or 30% if you are between 65 and 75.


A more popular option to reduce the inheritance taxes is to gift the
property to your children or other beneficiaries while retaining a life
estate in the property (known as Usufruct). This gives you the right to
occupy the property for your lifetime while your beneficiaries actually
own it. As the life estate holder you not only retain the right of
occupation, you are also entitled to any income the property produces
(such as rent). This can be an attractive option if you intend to buy
an apartment for the purpose of renting it out.


In theory using this option would play out like this. Your property is
worth 300,000 euro. You are under the age of 50 and have two children.
The value of the property you gift to your children would be 50% of its
actual value or 150,000 euro. Each child receives one half the value of
the gift, 75,000 euro. Because you retain a life estate in the property
the taxable value for each child is further reduced by 40% to 45,000
euro. Since each child receives an exemption of 46,000 euro they would
not pay any taxes on this transfer. And, because the children already
own the property–you only have the right of occupation–they will not
pay any taxes when you die and they have full rights to the property.
(Note: this scenario would play out similarly for non-related
beneficiaries, but values and exemptions would be different according
to their status.)


INHERITANCE TAX TABLE


The following rates for spouses and children are current as of early
2002. The value of the property allowance is different for spouses in
some cases and is noted in parentheses.


* Property Value…Tax Rate


* Less than 7,600 euro…5%
* 7,600 to 11,400 euro…10% (7,600 to 15,000)
* 11,400 to 15,000 euro…15% (15,000 to 30,000)
* 15,000 to 520,000 euro…20% (30,000 to 520,000)
* 520,000 to 850,000 euro…30%
* 850,000 to 1,700,000 euro…35%
* 1,700,000 and above…40%


(Siblings are taxed at 35% on a value of 23,000 euro or less; 45% if
more than 23,000 euro. Distant relatives and non-relatives are taxed at
a flat rate of 60%.)


I cannot emphasize enough that you should always consult with legal and
tax professionals who can advise you on the particulars of your
situation. We encourage you to seek the necessary counsel to enable you
to deal effectively with inheritance aspects of buying property in
France.


If you’d like to discuss any issues covered in this issue of Paris
Property Insider further, please e-mail me at
propertyinsider@
internationalliving.com


A bientôt,


Schuyler Hoffman
Editor, Paris Property Insider
E-mail: propertyinsider@internationalliving.com


P.S. I know Adrian asked you to take a poll earlier in the week, to
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*** DO YOU NEED SOUND FINANCIAL ADVICE?


Samina Arnoult has lived in France since 1977 and worked in finance
since 1984. After working with Worms, Legal and General, and Natwest,
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We’ve invited Samina to speak at the upcoming Working and Living
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Her objective is for each client to reach his/her goals here in France
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If you’d like talk to Samina about anything financial, send me an
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mailto:propertyinsider@internationalliving.com?subject=SaminaArnoult


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International Living’s Paris Office has access to the best information
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For more information (about the various services or your discount)
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