Inheritance Tax in France and the Assurance Vie or PCP (Private Client Portfolio Bond)

A guide to Inheritance Tax ( IHT ) in France and how this may be reduced


All figures are stated on those given at the time of writing (August 2011 with an update in April 2012), but may be subject to change. You are advised to take professional individual advice to accurately assess your situation and liability level. No responsibility can be accepted by the website or the author for any action or consequences thereof taken as a result of reading the information supplied in the article.


Further information on French tax can be found on our site using this link:

Moving to France

Please note that information given in the articles found here may supersede the relevant sections below.

Differences to contend with

When we decide to make the move from the UK to live in France, we have many hopes and dreams about a better life ahead (Life in France). We know it won't all be plain sailing, and we are realistic enough to foresee certain problems that may arise, especially if we don't speak French very well (Learning to speak French - Misadventures in a Foreign Tongue). We'll get by, we tell ourselves, and for the most part in every day life, we do. However, it isn't just the language differences that ex-pats in France have to contend with.

French Inheritance Tax and Laws

The French legal system is also very different, and an imperfect understanding of exactly what the situation is, especially with regard to complex matters (that may affect us all at some point) such as Inheritance Tax and inheritance laws and taxes can be costly. There is a legal path that you can follow to avoid some of these difficulties and also avoid paying too much Inheritance Tax (Succession Tax), as explained below with the help of expert Franck Haloche. In the case of inheritance (succession) laws, there are two main points to be aware of.

1. Distinction between property and assets

A clear distinction is made between property, which is subject to the laws of the country in which it exists, and the other assets, which come under the laws of the country in which the person was residing at the time of his/her death. Therefore, if you are resident in France when you die, your assets will be subject to potentially punitive French inheritance laws.

2. Children are the beneficiaries

The second vital difference of which you need to be aware, is that in France the law dictates that when you die, your assets (and all associated taxes and charges) pass to your children, not to your spouse or partner. This can come as a shock to the unwary, as it is very different from the picture in the UK, and is contrary to most ex-pats wishes.

Changes to inheritance laws ***

However, there are soon to be some changes to the inheritance laws. These changes will be of benefit to British ex-pats. And although they have not yet come into force at the time of writing this update (April 2012), it's important to know about them. There may be actions you can take in advance to make sure you benefit as soon as the laws are implemented.

European Parliament's new law

The European Parliament has just passed a law which allows UK citizens to insist that their will can be made under the laws of the country of their nationality. So, instead of being bound by French inheritance laws that allocate proportions of your property and assets regardless of your wishes, you will be able to choose your own beneficiaries as you can under the British system. The law is expected to be approved in June 2012, but it cannot be confirmed until that time. It may also be three years after that date when the new rules come into force.

Changing wills

Lawyers are expecting a rush of UK nationals making changes to their wills in advance of the new laws. If you think you may wish to do this, make an appointment with a qualified avocat to discuss the possibilities. And until the new laws come into play, or if for any reason you do not change your will to operate under the UK system, the following information will still apply. (Please note also that Inheritance Tax will not change.)

Legal document required to allow spouse to inherit

There are already certain steps that you can take to minimise the damage the current inheritance laws may cause, although of course, you must work within the laws of the country in which you have chosen to live. The advice of a qualified notaire is vital, and following such advice can save not only a lot of money, but also a lot of heartache for those you leave behind. It is possible to have a notaire draw up a change of matrimonial regime that allows the surviving spouse to inherit, or at least to retain rights to the assets and property for the remainder of their life, but this must be done by a notaire in a legal document.

Assurance Vie is vital to minimise Inheritance Tax

The single most important step that you can take to minimise Inheritance Tax on your survivors is to take out an Assurance Vie. It is the only legal way in France to avoid the worst of the taxes on your estate, and is a simple and effective answer to many problems. Without this protection, French Inheritance Taxes can be far more savage than those we know in the UK. An Assurance Vie is basically a savings account which allows you not only to withdraw your savings as and when you need to, but also allows for you to name your chosen successor (for your financial assets). (Please note, that French Inheritance Tax will not change even when the proposed new laws on testimentary freedom are brought in.)

Choice of beneficiary

Within the terms of an Assurance Vie you may choose the person who will receive your financial assets after your death. Instead of everything going automatically to your children, you can name your partner, any one or more of your children or another beneficiary. This overcomes the common problem of including in an inheritance, the children of previous marriages, a not unusual scenario in these days of divorce and remarriage. The Assurance Vie has the power to override France's outdated and Draconian succession or inheritance laws.

How does an Assurance Vie work?

An Assurance Vie is a savings scheme, and can also be viewed as an insurance policy for tax efficient investment. Investment can be done on the Stock Market or in Euro funds, and safety is guaranteed as it is fixed on the "marche obligataire" (bonds). The average rate for 2011 is between 3% and 4%. There are fees to pay, but as these are only set at between 2% and 5% of the amount you have saved, it performs very well against the norm of a 20% Inheritance Tax!

Assurance Vie is a Private Client Portfolio Bond

An Assurance Vie is described also as a Private Client Portfolio Bond (PCP), which holds your assets in a legal and approved framework that can reduce your tax rate on investment income and gains to between 0% to 18%, as opposed to rates of Income Tax that can be as high as 40% or 51% including social charges. If you allow the investment to increase without making withdrawals, no French Income Tax or Capital Gains Tax is payable. If you do make withdrawals, either as a regular capital or income (other than payment on death), only the growth element of the withdrawal is liable for taxation.

The benefits of an Assurance Vie

So to reiterate, while the funds and any uninvested cash are held within the PCP, you will not incur any French Income Tax or Capital Gains Tax or social charges, allowing the tax free growth of your money. If, however, you need to access your capital on a regular basis for income purposes, the PCP is still an extremely tax efficient way to manage your money, as only a portion of your income is liable to tax. Even in the latter scenario, a PCP allows you the choice of being taxed in two different ways, affording you the chance to choose the basis that best minimises your liability. Further, the rate of tax that you pay reduces over time, in many cases falling to zero.

Income Tax rates may differ

The tax rates that apply to the element of growth do not have to be the usual Income Tax rates. Instead, the tax payer can opt for a withholding rate of 46% for any withdrawals made within the first four years, reduced to 26% for the fifth, sixth, seventh and eighth years and being further reduced to 18.5% thereafter, inclusive of social charges. If the tax payer's marginal rate of Income Tax is lower than the fixed rates, by not opting or revoking the choice, the usual rates will apply.

Possible to reduce Wealth Tax liability

It is also possible for the policy to reduce Wealth Tax liability (French Wealth Tax). French Wealth Tax plus Income Tax cannot exceed 85% of the taxable income, (and there is also a 50% restriction in place, calculated on a slightly different basis, introduced in 2007) so because the policy reduces taxable income, it may also reduce Wealth Tax liability.

Act early for maximum benefit

The sooner you take action to limit your tax liabilities with an Assurance Vie, the greater will be the benefits. There are considerable Inheritance Tax (Succession Tax) savings to be had if the Assurance Vie is established before becoming a French resident with lives assured under the age of 70. In this case, no French Inheritance Tax is payable on death. If the Assurance Vie is established after becoming French resident, there is still an exemption of 152,500 Euros per beneficiary, after which a special withholding tax is payable at a flat rate, depending your familial situation. From August 22nd 2007, payments made to a surviving spouse or partner are exempt from Inheritance Tax.

Easy to manage

Once you take out an Assurance Vie, the provider takes on all the day to day administration for your portfolio, leaving you free to enjoy life in La Belle France. Be sure to talk to a specialist advisor, as French law can be complex and subject to changes that are difficult for the non expert to fully comprehend. Effective financial planning can make all the difference, not just to you in your enjoyment of life, but also to those you love who remain when you are gone.

Disclaimer Reminder

All figures are stated on those given at the time of writing (August 2011 with an update in April 2012), but may be subject to change. You are advised to take professional individual advice to accurately assess your situation and liability level. No responsibility can be accepted by the website or the author for any action or consequences thereof taken as a result of reading the information supplied in the article.

Additional articles which may be of interest:

Capital Gains Tax in France on Property
Tax in France
Savings and investments in France
Benefits in France for UK Ex-pats
Retirement and retiring to France

About the author

This article was written by Joanna Simm, under the guidance of Assurance Vie specialist Franck Haloche. Franck speaks fluent English and is happy to advise anyone who wishes for further information.

Franck Haloche
Agent Général
Parc d'Activité des Sémondières
1 Rue Louis Blériot
53500 Ernée

Email :
Tel : 02 43 05 21 82
Fax : 02 43 05 83 24
ORIAS Number : 09052461

Joanna Simm moved to the Languedoc area of south-west France in October 2004 having found her property through French Property Links.

your questions...

1. A question about the selling a property and the interests of children (added 30/10/12)...

If you sell your house in France and move back to UK, what happens to the interests of the children, ie under French inheritance law, there is a "reserve" for any heirs?

Our reply...

Thanks for contacting us. Though as tax and inheritance issues can be complicated and I am no expert in such matters, I would suggest you contact a legal or tax advisor for information on this. Perhaps using the above agent, our Business Directory or the following page on our site:

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