COMPASS IMMOBILIER: French inheritance law part 2

UNMARRIED OR SAME-SEX COUPLES

The inheritance position of unmarried or same-sex couples can be even more complex. A tontine clause is possible between an unmarried or same-sex couple but the inheritance tax implications are potentially significant. A company structure may be worth consideration to avoid certain of the complications that can arise with direct ownership without a tontine clause, allowing the surviving partner to retain control and possibly to alleviate the burden of inheritance tax.

INHERITANCE TAX

This operates in a manner very different to other countries. The tax is calculated on the basis of the amount that each person inherits and how he or she is related to the person who has passed away. Therefore, spouses; children and parents; and siblings are all subject to different inheritance tax treatment. Regard should always be had to the inheritance tax implications of any arrangement to select that which is most suitable.

Previously, a spouse benefited from an inheritance tax free band of 76,000 Euros with tax above this amount payable on a sliding scale of between 5% and 40% with the majority of most of the payment likely to fall within the 20% bracket which is the widest. However, a general spousal exoneration from inheritance tax has been introduced, although gifts remain taxable under the old rules (the applicable tax free band has now been increased to 79,533 Euros with a revision of the sliding scale).
Children and ascendants (i.e. parents) now benefit from an inheritance tax free band of 156,974 Euros each with tax above this amount payable on a sliding scale broadly similar to that aforementioned between spouses, although slightly less generous.

Brothers or sisters benefit from a tax free allowance of 15,697 Euros each and then pay tax at 35% on the first 24,069 Euros worth of property that is inherited and at 45% thereafter. Relatives up to the fifth degree of relationship pay tax at 55%. Nieces and nephews benefit from a tax free allowance of 7,849 Euros each. For other relatives there is a small tax free band of 1,570 Euros.

Upon property passing between people who are not related by blood or marriage, inheritance tax is payable at 60% (with a small tax free band of 1,570 Euros); this poses particular concern for unmarried or same sex couples. There are ways of minimising the inheritance tax liability, for example by an unmarried or same sex couple who meet the conditions entering into a special contract known as a PACS. There is now a general exoneration from inheritance tax for PACS partners too, although gifts continue to be taxed under the rules relating to spouses (tax free band of 79,533 Euros with tax payable above that on a recently updated sliding scale of between 5% and 40%). For those couples who have entered into other forms of partnerships, such as the UK Civil Partnership, these are now given legal recognition in France and they will benefit from the same tax treatment as those couples who have a PACS i.e. exoneration from inheritance tax for the surviving partner.

Copyright All Rights Reserved Victoria Headdon, Compass Immobilier