14 LAWYER MONTHLY NOVEMBER 2024 Sellers must navigate a distinct set of legal obligations, ensuring that every aspect of the property’s history is disclosed to potential buyers. €15,932): €107,278.40 • 30% on €14,343 (€566,666.67 - €552,324): €4,302.79 Total Inheritance Tax Per Child: • Sum of Taxes: €403.60 + €403.70 + €573.45 + €107,278.40 + €4,302.79 = €112,961.94 In this scenario, each child would owe approximately €112,961.94 in inheritance tax, significantly impacting their inheritance. To mitigate or avoid inheritance tax, here are several strategies that can be employed: 1.Gift Funds for Property Purchases Outside France One effective approach is to give money to your children to buy property in their names, ideally outside of France. This strategy can completely avoid inheritance tax since the property will already belong to the children. However, three conditions must be met for the gift to remain untaxed in France: • The parents must not be French tax residents. • The children must also not be French tax residents. • The money transfer must occur outside France. The main drawback of this method is the potential loss of control over the property, as children may choose not to sell in the future or keep the proceeds if they do. 2.Shared Ownership with Children Another option is to share ownership of the property with your children. This arrangement allows parents to maintain partial ownership while ensuring that their share of the inheritance is reduced. The respective ownership shares dictate how expenses, fees, and taxes are handled. However, this structure also presents challenges, as the children can refuse to sell the property, and any sale proceeds will be divided according to ownership shares. 3.Usufruct and Bare Ownership In France, property ownership can be divided into usufruct (the right to use and benefit from the property) and bare ownership (the right to inherit the property). By purchasing usufruct, parents retain control over the property during their lifetime, while the children receive bare ownership, which they will inherit upon the parents’ passing without incurring additional inheritance tax. The valuation of usufruct is determined by the parents’ age, which influences how much of the property’s value is taxed upon their death. 4.Forming a French Civil Company (SCI) Creating a Société Civile Immobilière (SCI) allows parents to pass property to their children by allocating shares of the company. Only the shares held by the parents at the time of their death are subject to inheritance tax, thus minimising the taxable estate. The structure of the SCI can be tailored to maintain control over decision-making, allowing the parents to act as administrators without requiring consensus from other shareholders for significant actions like selling or mortgaging the property. Conclusion Implementing these strategies can effectively reduce or even eliminate inheritance tax liabilities for real estate in France. However, it is essential to consider personal circumstances and consult with a legal expert to devise a plan that best fits your family’s needs and objectives. By proactively managing ownership and structuring, families can navigate the complexities of French inheritance tax more effectively. Understanding Wealth Tax and Strategies for Property Owners Can you explain the current wealth tax (Impôt sur la fortune immobilière) system in France, and how can property owners minimise their liability? The Impôt sur la Fortune Immobilière (IFI) is a wealth tax applicable to individuals whose net real estate assets exceed €1,300,000. It’s essential for property owners to be aware of this tax as it requires careful financial planning. The IFI applies to the total value of all real estate holdings, and the tax rate is progressive, ranging from 0.5% to 1.5%. To minimise liability under this tax regime, property owners can consider several strategies: 1.Leveraging Debt One effective way to reduce your taxable wealth is by incurring debt against your property. By taking out a mortgage or loan secured by the property, you can lower the net value of your real estate holdings. When calculating the wealth tax, debts are deducted from the total value of your properties. It’s crucial to assess the costs associated with taking on a loan compared to the potential tax savings. If the cost of the loan is lower than the tax liability, this strategy could be beneficial. However, keep in mind that monthly loan repayments will gradually increase the property’s net value, so ensure that the loan amount is sufficient to keep your property’s value below the €1,300,000
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