French Inheritance tax for U.S. Citizens Resident in France
Summary
The cornerstone of French inheritance tax law is its residence-based approach to taxation. Under Article 750 ter of the French General Tax Code (Code Général des Impôts or CGI), if an individual is considered domiciled in France for tax purposes at the time of death, their entire worldwide estate becomes subject to French inheritance tax. This principle is absolute in its scope; it encompasses all movable assets (such as bank accounts, stocks, and bonds) and immovable assets (real estate), regardless of their physical location. Consequently, assets held in the United States—be it a brokerage account in New York, a bank account in California, or real property in Florida—are brought into the French tax base.
A defining feature of the French system is that its inheritance tax, known as droits de succession, is levied not on the estate as a whole, but on the individual share received by each beneficiary. This stands in stark contrast to the U.S. federal estate tax, which is calculated on the total value of the decedent's estate before distribution to the heirs.
The calculation process in France follows a distinct sequence. First, a notaire (a civil law notary with public authority) determines the net taxable estate by inventorying all worldwide assets and subtracting any outstanding debts or liabilities of the decedent. This net estate is then apportioned among the beneficiaries according to the terms of a will or, more fundamentally, the rules of French succession law, including forced heirship. It is only at this stage that the tax is calculated. Each beneficiary is treated as a separate taxpayer, and the tax due is determined by applying a specific tax-free allowance (abattement) and a set of progressive tax rates (barème) based on that individual's familial relationship to the deceased.
The French inheritance tax system is characterized by a wide disparity in treatment based on the beneficiary's relationship to the decedent. The allowances and rates are designed to heavily favor the immediate family unit.
A cornerstone of this policy is the complete exemption from inheritance tax for surviving spouses and partners in a French civil union, known as a Pacte civil de solidarité (PACS). This provides significant protection for the surviving partner and is a crucial element of marital estate planning in France.
For other relationships, the treatment varies significantly, as detailed below:
Children and Parents: Each child is entitled to a tax-free allowance of €100,000 from each parent. The same allowance applies to a parent inheriting from a child. Any amount exceeding this allowance is taxed at progressive rates ranging from 5% to 45%.
Siblings: Brothers and sisters of the deceased receive a much smaller allowance of €15,932. Amounts above this are taxed at rates of 35% for the first €24,430 and 45% thereafter.
Nieces and Nephews: The allowance is further reduced to €7,967 for nieces and nephews, with the excess taxed at a high flat rate of 55%.
Unrelated Beneficiaries: For beneficiaries with no family ties, including unmarried partners not in a PACS, or for distant relatives, the allowance is a mere €1,594. Any inheritance above this token amount is subject to a flat, and often punitive, tax rate of 60%. Disabled beneficiaries may receive an additional allowance of €159,325.
To prevent circumvention of these rules through last-minute transfers, French law includes a 15-year "lookback" period. Any lifetime gift made by the decedent to a beneficiary within the 15 years preceding death is aggregated with the inheritance for tax purposes. This means the value of the prior gift uses up a portion of the tax-free allowance available at death, ensuring that the tax brackets and allowances are applied to the total wealth transferred over that period.
When a French resident passes away, the tax treatment of their estate is the same for both resident and non-resident heirs. The tax is calculated on the worldwide assets based on each heir's relationship to the deceased, and the heirs are responsible for filing the necessary declaration in France, regardless of where they live.