Changes to the rules around inheritance tax (droits de succession) in France may be on the way.
It follows a report from the Cour des comptes, France’s state auditing body, published last week which recommends updates to the current set-up.
President Emmanuel Macron made reforming inheritance tax an electoral pledge during his 2022 re-election campaign, but so far it has taken a back seat compared to other reforms, such as to the pension system.
The tax is unpopular, with a 2023 study by media outlet Les Echos showing nearly three-quarters of people in France believe the levies are too high.
France’s inheritance taxation is among the world's highest, with France being one of only four countries where tax on inheritance and gifts makes up more than 1% of all tax revenues (the others are South Korea, Belgium and Japan).
It brought in €16.6 billion in 2023, more than double that of 12 years before (€7 billion), making it a significant revenue stream for the government.
The most recent change to the rules was in March 2024, allowing payments of the tax to be spread out over a longer period.
Read more: Extra time now possible to pay French inheritance tax in instalments
The tax was introduced in 1791, and has polarised people in France since then.
The report by the Cour des comptes highlights how it is “the subject of opposite reform proposals, which seek alternately to increase or reduce it, or even abolish it altogether.”
This is despite around a third of people in France not inheriting anything in their lifetime - of those that do the median amount inherited is €70,000.
At the upper scale, 0.1% of inheritors receive €13 million or more, and a report by charity Oxfam France claims on average, those in this bracket pay only around 10% of inheritance tax on the amount received, due to various exemptions and tax breaks, such as the Pacte Dutreil (which gives a 75% exemption for passing on a business) or the use of assurance vie policies, which can keep investments outside the usual inheritance tax process.
Oxfam predicts in the next 30 years €160 billion in revenue from inheritance tax at the current rates will be lost due to ‘super-inheritors’ using financial mechanisms to lower the tax they pay.
What are current inheritance tax rules?
Currently, French inheritance tax rules are as follows:
Children can inherit up to €100,000 tax-free, and are then taxed at a progressive rate.
This progressive rate rises from 5% on amounts over the tax-free threshold of less than €8,072, up to 45% on amounts over €1,805,677.
However, for so-called ‘collateral’ heirs – those without a direct parental link – rates are much higher.
Brothers and sisters inheriting from a sibling benefit from a tax-free allowance on amounts up to €15,932 and face a tax rate of 35% on amounts over this and then 45% from €24,430 of taxable income onwards.
Nephews and nieces have a tax-free allowance of €7,967 and a tax rate of 55% on amounts over this.
Distant relatives or third parties benefit from a tax-free allowance of €1,594 but face a tax rate of 60% on everything above that amount.
This applies to all taxable inheritances (with some small exceptions), including property and land.
Crucially, step-children are counted as third-parties, and must pay the 60% tax after the small tax-free allowance.
There are ways to increase the amount of tax-free inheritance, such as through the use of an assurance vie, which offers €152,000 of tax-free inheritance to the beneficiary.
Read more: What is the ‘assurance-vie’ our French bank is offering us?
Another option is to gift assets while still alive, although this is also governed by strict rules and taxes.
Read more: Consider the tax implications of making a gift in France
Adoption of your step-children is also possible under certain (limited) conditions, making them eligible for the €100,000 tax-free inheritance.
Note that for inheritances over €5,000, the services of a notaire are required.
Read more: What notaire fees are due on an inheritance in France?
What new changes are recommended?
The Cour des comptes prioritises “reducing tax exclusion/reduction possibilities in the favour of a targeted reduction in tax rates, while taking care to maintain the overall tax revenue.”
It notably proposes that taxation is made lighter on family members such as brothers, sisters, nephews and nieces, as well as a spouse/partner's children (ie. a person's stepchildren).
It says this would help "better take account of evolutions in families and society". President Macron made similar comments during his 2022 election campaign.
The Cour des comptes says that a lightening of taxation on lifetime gifts could also be considered, to favour people passing on some of their wealth at an earlier stage.
It also proposes reducing the tax advantages linked to the Dutreil pact and assurance vie.
The report is a recommendation, and does not guarantee changes will be implemented, however it is highly regarded and its reports often influence government policy.
While the report looks in general at possible wide-ranging reforms to the inheritance tax regime, it lists five issues which it states could be tackled independently of this:
Align more inheritance tax and assurance vie tax reductions / exemptions
Make it compulsory to declare inheritances online, speeding up the process and reducing the risk of non-payment of the tax
Have a dedicated team to work on online applications, in frequent touch with notaires managing inheritance cases
Assess whether an online system for insurance companies and banks to file assurance vie policies (detailing who is set to inherit and how much) is possible
Carry out an in-depth study before changing any inheritance/gift tax rates
The full 92 page report can be found here (downloadable as a pdf near the bottom of the page) as well as an overview of the law provided by the Cour des comptes.
Read more: Campaign against French inheritance law ramps up pressure
