I have two children living in France. I am now a widow, an Irish citizen living in Ireland where any assets I have are situated.
When I die, will my children have to pay inheritance tax in Ireland or in France and at what rate? There appears to be a huge difference between what a beneficiary can receive in Ireland, tax free, compared to the same circumstance in France.
There does not seem to be a double tax treaty between France and Ireland in relation to inheritance tax. I am greatly concerned about this and am frustrated in my attempts to find out what is the most tax-efficient way for me to leave my children an inheritance.
I have contacted two different tax advisers in Ireland, neither of whom could give me a definitive answer.
Ms J.M., email
If you were tasking those tax advisers with finding creative solutions to estate planning, fair enough. But if you were simply asking them for a definitive ruling on where people resident in France pay inheritance tax on inheritances sent from Ireland, that should not have been beyond them.
The answer is straightforward: if you are tax resident in France, you pay inheritance tax in France. While there is a double taxation treaty between Ireland and France, which covers areas like income tax and corporation tax, it does not address inheritance tax.
Like Ireland – but unlike, say, the United Kingdom – inheritance tax in France is levied on the beneficiary, not the estate.
To be fair, that’s pretty much where the similarity ends.
Like Ireland, people receive a tax free exemption – but not all of them do. And, even where they do, it is a fraction of the Irish equivalent.
And, unlike Ireland, where there is a single rate of capital acquisitions tax/inheritance tax, in France there are myriad rates – and which one you are on depends both on your relationship with the deceased and, for some, the amount of the inheritance.
Straightforward, isn’t it?
The good news for you and your French resident children is that the most favourable rates apply to inheritances between a parent and a child. Others to receive similar favourable treatment are grandchildren (where the children have died) and parents. But, strangely, stepchildren lose out unless formally adopted as do partners unless that have a precise status.
Given the bewildering array of rates, I am going to focus on what applies to your situation: otherwise, we’d have the start of a book here.
The tax exemption, or abatement, for a child from a parent is currently €100,000. This can change but does so only rarely. It governs both inheritances and lifetime gifts.
However, unlike in Ireland, where the parent to child exemption – currently €320,000 – covers gifts and inheritances received from either parent over your whole life, the French abatement times out. At the moment, it is 15 years. This means that if you gift a child up to €100,000, you cannot gift them again for 15 years.
Equally, if you die today, the French tax authorities will look back and count any gifts your child received from you in the last 15 years and set it against their abatement. So, in this example, anything they received from you before August 6th, 2004 would not be taken into consideration in assessing tax liable on their inheritance.
Unhelpfully, the timing out period also changes. None existed before 1991 and, since then it has ranged at different times from six years to 10 years and, since August 2012, 15 years.
So far, so confusing.
Once you go above the abatement, tax kicks in and, as I mentioned, children again fare best in the rate of tax they will pay. People unrelated to you can pay tax of up to 60 per cent, depending on how far removed they are from your bloodline, and they won’t even have an exemption.
Exactly how much tax your children will pay depends on how much they receive from you.
– On the first, €8,092 over the €100,000 abatement, a child tax resident in France will pay 5 per cent in tax;
– Between €8,092 and €12,109, the tax rate is 10 per cent;
– That rises to 15 per cent on anything between €12,109 and €15,932;
– Between €15,932 and €552,324, the relevant tax rate is 20 per cent;
If they inherit more than that, the rate rises again:
– to 30 per cent on sums between €552,324 and €902,838;
– 40 per cent on sums between €902,838 and €1,805,677;
– and 45 per cent on anything above €1,805,677.
Do I know why they use should odd figures for their thresholds? I don’t have a clue. I imagine it is some legacy issue from when the system changed to euro from French francs – a bit like our odd €1,270 capital gains tax exemption, which is simply a translation form £1,000 punts to euro. However, that is purely a guess.
So clearly yes, there is a difference between what you will pay in inheritance tax in France and in Ireland. However, it is not entirely one-sided.
France makes it easier to plan your estate by making gifts to your children – up to the €100,000 figure – every 15 years; you don’t have that option in Ireland.
And the French tax rate is also noticeably lower than the Irish rate, at least until you get to the position where you are inheriting well to around the €1 million mark when the 40 per cent rate kicks in, allowing for the abatement.
Ultimately, where you do better depends on the amount involved.
At the slightly lower end of things, clearly a child in France inheriting a sum from a parent between €100,000 where their exemption ends and €320,000 where our exemption for a child ends would be out of pocket.
That continues to be the case even after Irish tax kicks in – up to a point. Once you get to around €650,000 of inheritance, and allowing for the abatement, you are once again slightly better off in France, and remain so certainly till you get comfortably over the €1 million mark.
If you are looking for specialist estate planning advice on how to reduce further your children’s exposure to French tax, you really are going to have to engage a French lawyer, or estate planning adviser.... and that might end up costing more than your children will save unless the estate is of a truly significant size.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice.
