Receive and Ye Shall Pay…Hopefully Not!
Volume XX, Issue 2
Like many property owners in France who are in retirement years with adult children, one of our biggest concerns is the inheritance taxes those children may pay just to hold on to the home in which they were raised. I’m going through this myself at this very moment, since when I purchased our Paris apartment, I was much younger and not thinking at all about inheritance taxes, nor retirement for that matter. My daughter grew up in this apartment and has made me swear never to sell it; that she wants to inherit it for herself. But, will she be able to afford the taxes now that it’s worth almost six times what we bought it for more than 20 years ago?
In a recent article in The Local, they question…
I’m thrilled. Of all of the taxes in France, this is the one I have always been very opposed to. Wealth tax—I get it and don’t disagree with it, at least not in principle. Sales tax—sure. We almost all have that tax to bear. Property tax —cheap as dirt in France and nothing to complain about. Income tax—high, but you get a lot for your money thanks to the great infrastructure the government provides. Social security taxes—paid dearly by employers and the self-employed, but a lot cheaper than the high cost of medical insurance in the U.S. and a lot more beneficial upon retirement.
But, high inheritance tax? Why should our children bear the cost of their parents’ assets increasing in value to the point that they might have to sell the home just to pay the tax? This seems so out of line with the French idea of family and “patrimoine!”
French President Emmanuel Macron, who’s a bright economist himself, and his Economy Minister, Bruno Le Maire, want to reduce inheritance tax in France. Yeah! The tax laws are so complicated that I have a team of three financial experts circling my own situation—a CPA/Expert Comptable, a financial advisor and an international tax attorney. They come at a hefty price, but it takes all three to figure this out because the laws are so complicated and highly regulated.
France employs “forced heirship”—you are not allowed to disinherit your children. (Learn more about this in The Local) If you are lucky enough to be from another country, such as the U.S., you can elect U.S. law to bequeath your French assets, but that doesn’t absolve the heirs from the tax. By French law, they see direct lineage as most important, with nieces and nephews falling behind and paying even more dearly, regardless of how close they might be to the family.
Macron and Le Maire think it’s unfair. As it stands, the amount of tax your heirs pay depends on this lineage. Married or “PACSed” (civil partnership) couples pay no tax when one dies. So, it pays to get married or PACSed otherwise this individual will pay as much as a non-relative pays. Ugh! If you’re a sister or brother of the deceased, you can be exonerated from the tax, but only if you meet three certain conditions (outlined in their article). The children pay nothing if the property is estimated at a value of less than €100,000 (not too many of those exist!), but after that the tax could be as high as 45 percent.
But, it’s not just about the tax. A PACSed survivor can only stay in the property up to one year after the death, even if having title to it. Without the marriage or PACS, the likelihood of being able to remain in the property is slim.
Foreign residents have the benefits of adopting the inheritance laws of their own country. All it takes is a French will on file to allow the property to be bequeathed according the law of their native country. It’s cheap to file—about €136.
Meanwhile, Macron and Le Maire are just whetting our appetite for such reform. According to The Local, this is going to be a big challenge to making the changes they are proposing and will be a big political debate as well. The rules are very complicated, as I wrote earlier, and no surprise given France’s reputation for complexity. The Local article outlines it in great detail, so there’s no point in my reiteration of it, but there is an online simulator (in French) that might help.
And one thing is sure, when you are purchasing a property in France, one of the first things you should do is investigate the inheritance laws and structure the purchase in a way that will reduce your heirs’ taxes. I wish I had…but when I bought mine so long ago, I didn’t have a “me” to advise. (Fortunately you do!)
The Adrian Leeds Group®
Adrian with daughter, Erica (age 2), and mother, Gertrude (now deceased)
P.S. If you are considering a property purchase in France, don’t do it lightly. Let us help you make the smartest decisions to ensure you make the best investment you can, including the ramifications of French law on inheritance. Contact us to learn more.