Is there a way to reduce French inheritance tax for friends by 60%?

Question from the reader: I am British but live in France. I have no children and no partner. I want to bequeath my estate to my friends and partly to charity, but I am aware of the 60% inheritance tax for my friends. No suggestions?

Having no children, you can freely bequeath your estate to whoever you want. The downside is, as you know, the rate of French inheritance tax when passing on assets to an unrelated beneficiary – a miserly €1,594 non-taxable abatement, with the remainder taxed at 60%.

If you have enough money available, you can invest in a life insurance policy and designate your friends as beneficiaries. Depending on your age at the time of the investment, you could bequeath a significant tax-free sum to friends.

However, for many people, their assets are tied to their home or fixed assets and a life insurance policy is not always practical.

French or British charities?

I would currently caution against leaving assets from a French estate to a UK charity – post Brexit which could be 60% taxed here as there is currently no mutual agreement between the UK and France regarding the treatment of charitable inheritance tax.

If you are happy to leave assets to a French charity, there is an interesting scheme with the Fondation de France (FDF), whereby you leave an inheritance or your entire estate to FDF with a request that they leave a share to your friends.

For example, if you bequeath €100,000 to Mr. A, he will pay €60,000 in tax and will receive €40,000. However, if you leave €100,000 to FDF, with a bequest to Mr A, then FDF leaves the net bequest of €40,000 to Mr A, and FDF pays tax on it (60% of €40,000 = €24,000 ). Mr. A receives €40,000. FDF ends up with €36,000.

This requires some neat writing, but it’s a neat solution. Your friend doesn’t escape tax, but you can donate some of the tax to charity.

Author: John Kitching, French law consulting firm. French Law Consultancy provides legal advice in French

Related links:

French property tax: purchase, sale, capital gains, inheritance

As a widow, do I need a French will to ensure the house goes to the children?

French property law: how does a first-to-die tontine clause work?

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