In France, inheritance tax is a very real concern. A standard family home valued at €250,000 can generate a significant tax bill depending on the heir and the estate’s preparation. Many families only discover the rules too late, leaving them with few options: sell, borrow, or dispute.
Who Is Responsible for Paying Inheritance Tax?
French succession law distinguishes sharply between close relatives and other heirs. While some beneficiaries pay nothing, others may face steep taxes on the same property.
Heirs Exempt from French Succession Tax
Two main groups can inherit without paying succession tax:
- Spouse or civil partner (PACS) – They inherit tax-free, regardless of the estate’s size.
- Certain siblings – Exempt only if all of the following conditions are met:
- Lived with the deceased for at least five years before death.
- Single, widowed, divorced, or legally separated.
- Over 50 years old or officially recognized as disabled at the time of inheritance.
Some close relatives pay nothing, while others face high taxes on the exact same property.
Heirs Who Pay Tax but Benefit from Allowances
Other heirs fall under the general inheritance tax rules. They receive a tax-free allowance based on their relationship to the deceased, with only the remaining amount taxed.
| Heir Relationship | Tax-Free Allowance |
|---|---|
| Children and parents (lineal descendants/ascendants) | €100,000 |
| Brothers and sisters | €15,932 |
| Nephews and nieces | €7,967 |
| Other heirs (friends, distant relatives) | €1,594 |
After applying the allowance, a progressive tax scale is used. For children, rates start at 5% and rise through 10%, 15%, 20%, and higher as the taxable amount increases.
Example: €250,000 House Left to an Only Child
Consider a common scenario: an only child inherits a French house worth €250,000 with no other assets or debts.
Step 1: Calculate Taxable Base
The child benefits from a €100,000 allowance. Taxable amount = €250,000 – €100,000 = €150,000.
Step 2: Apply Progressive Tax Rates
The €150,000 is divided into slices taxed at different rates:
- 5% on the first €8,072
- 10% on €8,073–€12,109
- 15% on €12,110–€15,932
- 20% on €15,933–€150,000
Combined, the inheritance tax totals roughly €28,000 on this single property. Additional notary fees, property transfer charges, and potential future capital gains tax may increase the financial impact.
Strategies to Reduce French Inheritance Tax
Families who plan early can significantly reduce, or even nearly eliminate, taxes on future inheritances. Several legal tools are available if used in advance.
Lifetime Gifts to Gradually Transfer Wealth
French law allows parents to gift substantial assets to children tax-free, with generous allowances every 15 years:
- Tax-free lump-sum gifts: Each parent can give €100,000 to each child every 15 years without triggering gift tax.
- Staggered transfers: Spreading gifts over time reduces the estate’s taxable value at death.
Applied to a house, parents can use cash gifts to help a child buy part of the property or equalize shares between siblings while property values are lower.
Dividing Ownership: Bare Ownership and Usufruct
Another key strategy is splitting property into bare ownership (nue-propriété) and usufruct (usufruit):
- Parents transfer bare ownership to children but keep usufruct, allowing them to live in or rent the home.
- Tax is applied only to bare ownership, typically 40–60% of the property’s full value, depending on the parent’s age.
- Upon parents’ death, children gain full ownership without additional inheritance tax.
Life Insurance as a Complementary Tool
Life insurance contracts operate under a separate regime and can transfer wealth with minimal or no inheritance tax:
- Premiums paid before the saver turns 70 allow each beneficiary up to €152,500 tax-free.
- Amounts above this threshold are taxed at a flat rate, often lower than standard succession rates.
- Life insurance provides heirs with liquid funds to cover taxes or compensate siblings.
Real-Life Application
Example: A couple owns a €250,000 house and has one child. Without planning, the child faces ~€28,000 tax. Planning at age 55 could involve:
- Transferring bare ownership of the house early, reducing the taxable base to ~50% of the property value.
- Using €100,000 allowances via staggered cash gifts to reduce future taxable estate.
- Funding life insurance contracts for the child up to the €152,500 tax-free threshold.
Upon death, the child may inherit the full house and life insurance with minimal or no additional tax, dramatically lowering the initial €28,000 potential bill.
Important Considerations
Property inheritance can create challenges:
- Liquidity issues: a house cannot be easily divided like cash, so buyouts or sales may be necessary.
- Reserved heirs: French law guarantees children a minimum share. Excessive gifts to one child, spouse, or third party can be challenged and partially clawed back.
- All gift and life insurance strategies must comply with these legal reserve rules.
