France is implementing changes to its inheritance tax rules in , offering greater flexibility to heirs facing liquidity challenges. The reforms aim to address the difficulties many families encounter when settling inheritance taxes, particularly when estates include illiquid assets like real estate.
The changes will benefit heirs, families, and entrepreneurs by providing more adaptable payment options tailored to estates comprised of property or less easily converted assets. This evolution is expected to help preserve family wealth and prevent forced sales of assets to meet tax obligations.
More Accessible Installment Payments for Inheritance Tax
Beginning in , French inheritance tax legislation will evolve to provide heirs with a more flexible solution to manage the financial burden of the tax. Installment payments will become more accessible, with the interest rate reduced to 2%, down from 2.3% previously, and more lenient payment terms.
This reform is designed to prevent the hasty sale of real estate, often necessitated by the six-month deadline for settling tax liabilities. In a context where asset transmission frequently involves illiquid holdings, this measure responds to the growing demand to preserve family wealth without incurring losses from urgent sales.
Installment and Deferred Payment: Conditions, Terms, and Interest
Installment payments allow heirs to spread the settlement of inheritance tax over one to three years, provided that more than half of the inheritance consists of illiquid assets, such as real estate or unlisted securities. The tax administration generally requires guarantees, such as a mortgage, to approve such arrangements. In cases of a split ownership structure, the bare owner (nue-propriétaire) may benefit from a deferred payment, without interest, until the reunification of the beneficial interest (usufruit) and bare ownership, for example, upon the death of the life tenant (usufruitier).
This option, which should be requested when filing the inheritance tax return, provides valuable financial relief, avoiding the forced sale of family assets.
Installment or Deferred Payment: Understanding the Differences
| Provision | Principle | Duration | Interest |
|---|---|---|---|
| Installment Payment | Spread the payment of tax | 1 to 3 years | Reduced rate |
| Deferred Payment | Postpone payment until a future event | Variable | No interest in some cases |
Procedure and Steps with the Tax Administration
To request an installment or deferred payment, the application must be submitted to the competent tax office, ideally when the inheritance tax return is filed by the notary. The file should include a letter of motivation, the written agreement of all heirs, a detailed list of the assets transferred, and, if applicable, the proposed guarantees (mortgage, surety). The notary plays a central role in preparing and submitting the file.
The administration has several months to rule on the application, assessing the proportion of illiquid assets and the solidity of the guarantees. To maximize acceptance, It’s advisable to anticipate the process and provide a complete and well-supported file.
Special Cases: Business Transfers and Reduced Rates – Leveraging Tools to Preserve Wealth
Business transfers benefit from a particularly advantageous regime: under certain conditions, the interest rate for installment payments falls to 0.6%, with the possibility of deferring payment for up to five years, and then spreading it over ten years.
This provision, crucial for heirs of professional or illiquid real estate assets, limits the risk of forced sales at a loss. By anticipating succession planning and carefully preparing the file, families can preserve the integrity of their wealth and ensure the sustainability of family businesses. These measures highlight the importance of proactive succession planning to optimize tax management and protect transferred assets.
Non-EU residents inheriting assets in France may be required to appoint a French fiscal representative if the taxable gain exceeds €150,000, ensuring proper declaration and payment of tax. French inheritance tax rates can reach up to 60% for non-family heirs, making careful planning essential. Nearly 45% of estates are subject to some form of inheritance tax, with over €300 billion in assets transferred annually through inheritances and gifts.
The system of forced heirship (réserve héréditaire) ensures that a fixed portion of the estate automatically goes to the deceased’s children, regardless of any will. The reserved portion depends on the number of children: one child receives at least half of the estate; two children share two-thirds equally; and three or more children share three-quarters equally. Only the remaining portion, the quotité disponible, can be freely distributed.
