The purchase of a second residence is often an appropriate time for inheritance planning. Therefore, this contribution will provide more information on inheriting in France and the additional inheritance tax.
The applicable inheritance law - the rules that determine how an estate is distributed - depends on the testator's place of residence. This means that if you live in Belgium but have a second residence in France, Belgian inheritance law will apply.
However, if you move to France, French inheritance law will in principle apply. This is similar to Belgian inheritance law, with a system of reservatory heirs as well. In a will, however, you can opt for the inheritance law of your nationality.
Under French domestic law, French inheritance tax applies to all property with a direct or indirect link to France. For example, think of real estate located in France, shares in a French company, shares in a Belgian company with mainly real estate in France, etc.
Property is valued on the basis of market value. For household goods, you can apply a flat rate of 5% to the property value. From the total assets, you can still deduct liabilities (debts). Finally, all gifts to heirs from 15 years before the testator's death should be included in the estate. This is the taxable basis.
On the taxable basis, there are exemptions by type of heir. For example, for legal cohabitants (pacte civil de solidarité) and married couples a full exemption in inheritance tax. For children, there is an exemption in the amount of 100,000 euros. The exemption for siblings is €15,932.
Amounts above the exemption are taxable at a rate of 5% - 45% for direct line heirs and 35% - 45% for siblings. The rate for relatives up to the fourth degree is 55% and for third parties 60%, which can be problematic for newly formed families. There is also a social contribution of 0.1%.
What about Belgium?
If you remain a resident of Belgium and your heirs inherit in France, Flemish, Walloon or Brussels inheritance tax will continue to apply to your worldwide assets, respectively. However, you can reduce the inheritance tax in Belgium by the tax actually paid in France. You may therefore deduct the inheritance tax paid in France from the inheritance tax payable in Belgium. However, if there is a complete exemption in France, there will be inheritance tax to pay in Belgium. After all, there is then no tax to offset.
What about shares of an SCI?
According to the double taxation treaty for inheritance tax between Belgium and France, the country of residence of the testator may tax the units in an SCI. As a Belgian resident, the shares in the SCI (and indirectly the property) are taxed in accordance with the inheritance tax in Belgium. Be aware that the French administration has disputed this position in the past.
Because of the high inheritance tax in France, it is advisable to think about inheritance planning prior to a purchase. Confianz can assist you with this.