Real Estate

What are the consequences of buying a property in France? Focus on French inheritance tax

by Prof. Robert Anthony and Dr. Michael Annett, Anthony & Cie

In the last article we provided an introduction to the consequences of buying a property in France. Here we continue our analysis of the consequences of buying a property in France by developing the topic of French inheritance tax: France offers several options as to how property can be held, as property does not simply have to be owned directly in the names of the purchasers. It is also possible to own property through a French civil or commercial company. However, ownership of a French property by a commercial company can lead to financial nightmares, the issues relating to which invariably require the ownership to be restructured1.

With French inheritance tax, if neither the deceased nor their heirs are tax residents of France, upon the demise of an owner, only the directly-held property assets in France are taxable. These rules are subject to international tax treaty provisions which, whilst of a standard nature as far as France is concerned, may have different applications according to country. Evidently, for French tax residents, the value of the property is included in the overall value of the estate.

Wherever France does have the right of taxation on inheritances, it assesses the net value of the asset, taking into account debts (such as bank loans and mortgages) as deductions against the property value, occasionally rendering the use of loans or mortgages advantageous (particularly interest-only loans). It can also be beneficial to bequeath or donate some of the shares of the civil company that owns the French property. These bequests and donations can be very tax efficient if they include the retention of a ‘life interest’ in the property. Inheritance tax no longer exists between spouses, and whilst current French inheritance tax rates range from 5% to 45% between parents and children, children also benefit from an inheritance tax allowance2, which further reduces any potential liability. One reason for being extremely careful about to whom to leave property to, even under a foreign will, is that France applies a 60% tax rate on inheritances to anyone who is more directly related to the deceased than a niece/nephew or uncle/aunt.

[1] This ownership structure through a company generates French corporation tax at 15% or 33.33% on income, depending on the amount of the profit, and a benefit in kind is created for the company shareholder using the property. French accounting will also need to be carried out for the foreign company and a French corporate tax return must be filed with the French tax administration.

[2] Children benefit from an exemption allowance of EUR 100,000 per child and per parent.


Robert Anthony 1Prof. Robert Anthony
Anthony & Cie
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Anthony & Cie is an independent international family office, based on the French Riviera as well as located in Paris and in London. Since its creation in 1978, Anthony & Cie orchestrates financial, real-estate and tax advice as well as French legal advice.

Professor Robert Anthony is the Principal Partner of Anthony & Cie and Co-Founder of Anthony & Co UK Ltd. He is a Professor of International Tax Law (Thomas Jefferson School of Law, California). He is a Chartered Certified Accountant (UK) and Certified Financial Planner (France). He is also a member of the board 'Sophia Business Angels'.

 

 Annett Michael 121pxDr. Michael Annett
Anthony & Cie
T: +33 4 93 65 32 23
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Dr. Michael Annett is a co-director of Anthony & Cie International, in addition to his numerous UK financial, fiscal and IFA qualifications, and in France, already conforms to French forthcoming regulations on patrimonial legal and fiscal advice.

 

 


published: February 2014

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