Understanding inheritance tax in France: a complete guide and practical example

David
Apr 19
4 min read

Losing a loved one is a painful ordeal, and managing their estate can quickly become complex. One of the crucial aspects to understand is inheritance tax. This tax, levied on each beneficiary's share of the inheritance, is governed by specific rules in France. This article guides you through the mechanisms of inheritance tax, how it is calculated, the applicable scales, and the existing allowances, and illustrates everything with a concrete example. We will also address the specific issue of transferring real estate assets held through a Société Civile Immobilière (SCI).

Who is affected by inheritance tax?

Inheritance tax applies to all heirs (children, surviving spouse, parents, siblings, etc.) and legatees (persons designated by will) who receive a share of the inheritance of a deceased person who is a tax resident in France. Assets located in France and those located abroad are generally subject to this tax.

How is inheritance tax calculated?

Inheritance tax is calculated in several steps:

Determination of gross estate assets: This refers to all assets left by the deceased (real estate, bank accounts, financial investments, furniture, etc.) valued at their market value on the date of death.
Deduction of debts: The deceased's debts (unpaid bills, outstanding loans, taxes due, funeral expenses up to a certain limit) are deducted from the gross estate assets to obtain the net estate assets.
Distribution of net assets among heirs and legatees: The net assets are then divided among the various beneficiaries according to the rules of inheritance (family ties, will). The share going to each person is called the taxable share.
Application of allowances: Specific allowances are provided based on the family relationship between the deceased and the heir or legatee. These allowances reduce the taxable base. The main allowances in 2024 are as follows:

- Surviving spouse and civil partner: total exemption.

- Children: €100,000 per child.

- Grandchildren: €1,594 per grandchild.

- Brothers and sisters: €15,932 (subject to specific conditions).

- Nephews and nieces: €7,967.

- Other heirs: tax allowance varies depending on the case (low or zero for persons without direct family ties).

Application of the progressive scale: Once the tax allowance is applied, the progressive inheritance tax scale is used to calculate the tax due on the remaining taxable portion. Rates vary depending on the relationship and the amount of the taxable portion.

Inheritance Tax Scales (2024)

The scales vary considerably depending on the relationship to the deceased. Here are the main scales applicable in 2024:

Children, parents, and other direct descendants/ascendants:

Tranche de la part taxable (€)	Taux (%)
Jusqu'à 8 072	5
De 8 073 à 12 109	10
De 12 110 à 15 932	15
De 15 933 à 552 324	20
De 552 325 à 902 838	30
De 902 839 à 1 805 677	40
Au-delà de 1 805 677	45

Brothers and sisters:

Up to 24,430: 35%, 45% thereafter.

Nephews and nieces: 55%

Other heirs (up to and including the 4th degree): 55%

Heirs beyond the 4th degree and non-relatives: 60%

A simulator is available on the Ministry of the Economy's website.

Concrete example: €1 million inheritance to an only child

Let's take the example of a deceased person leaving a net estate of €1,000,000 to their only child.

* Gross taxable portion: €1,000,000

* Applicable tax allowance (child): €100,000

* Net taxable portion: €1,000,000 - €100,000 = €900,000

Now, let's apply the progressive scale for children:

From €0 to €8,072: €8,072 * 5% = €403.60

From €8,073 to €12,109: (€12,109 - €8,072) * 10% = €4,037 * 10% = €403.70

From €12,110 to €15,932: (€15,932 - €12,109) * 15% = €3,823 15% = €573.45

From €15,933 to €552,324: (€552,324 - €15,932) * 20% = €536,392 * 20% = €107,278.40

From €552,325 to €900,000: (€900,000 - €552,324) * 30% = €347,676 * 30% = €104,302.80

Total inheritance tax due by the child: €403.60 + €403.70 + €573.45 + €107,278.40 + €104,302.80 = €212,961.95 €

Thus, on an estate of €1 million, the only child will have to pay nearly €213,000 in inheritance tax.

Transferring Real Estate Held in a Real Estate Investment Company (SCI)

Transferring real estate held through a Real Estate Investment Company (SCI) presents significant specificities regarding inheritance tax. Instead of transferring the real estate directly, the shares in the SCI are transferred to the heirs.

The valuation of shares for the purpose of calculating inheritance tax can be complex. It takes into account the SCI's real estate assets, but also its liabilities (outstanding loans, debts) and may be subject to discounts to account for the illiquid nature of the shares and the potential difficulty in selling them (illiquidity discount).

Furthermore, ownership through a SCI (Swiss Real Estate Company) can offer tax advantages in terms of inheritance, particularly through anticipated inheritance planning (donation of shares spread over time, allowing for tax deductions renewable every 15 years). It is crucial to seek professional assistance (notary, tax lawyer) to optimize the transfer of real estate assets held through a SCI (Swiss Real Estate Company) and understand the specific tax implications.

In conclusion, inheritance tax in France is an important element to consider in estate planning. Understanding the calculation rules, scales, and deductions allows you to anticipate costs and optimize the transfer of your assets. The situation of real estate assets held through a SCI requires special attention and personalized advice to understand all the tax intricacies.