How to Reduce French Inheritance Tax

Why planning matters

French inheritance tax is charged on what each heir receives, at rates that climb steeply and apply from a low threshold, which is exactly why the tax is best reduced years before a death rather than in the weeks after one. Between a parent and a child the tax is worked out on the share passing to that child after a personal allowance, and the balance is then taxed on a progressive scale that runs from 5% up to 45% on the largest transfers (Article 777 of the General Tax Code). Between people who are not related the single rate is 60%, so leaving an estate to a partner outside marriage or a PACS, a friend or a godchild is punishing unless it is structured in advance.

The good news for a family that plans ahead is that French law hands you a series of tax reliefs, each with its own allowance, its own timing rule and its own conditions, and they are designed to be used together and repeated over a lifetime. A surviving spouse or a civil-partnership (PACS) partner is entirely exempt from inheritance tax on what they inherit at death (Article 796-0 bis of the General Tax Code), so most planning is really about the next generation. The central mechanisms — the per-child allowance, the fifteen-year reset, life-assurance wrappers, splitting ownership between a life interest and bare ownership, the family deed of gift-and-division, and business relief — are the levers this article works through in turn.

Two points frame everything that follows. First, none of these tools lets you disinherit a protected heir: France reserves a fixed share of the estate for children (and, where there are none, a childless spouse), and reducing tax has to be done inside that constraint, not against it. Second, timing is the single most valuable variable. Almost every relief rewards the family that starts early, because the fifteen-year clock that governs allowances only helps those who leave enough time for it to run. The tool below helps you see which lever is likely to do the most work for your particular assets and goal.

The 15-year rule (rappel fiscal)

The fifteen-year rule is the hinge on which almost all French gift-and-inheritance planning turns. When a person makes a gift, or dies, French law looks back over the previous fifteen years and adds up ("recalls") the earlier gifts made by the same person to the same recipient; the allowances and the lower tax bands already used on those earlier gifts are treated as still used, so they are not available a second time (Article 784 of the General Tax Code). This recall of prior gifts (rappel fiscal) is what stops a family from emptying an estate in a single afternoon of gifts that each slip under an allowance.

The rule cuts both ways, and the favourable side is the one that matters for planning. Once a gift is more than fifteen years old, it drops out of the calculation entirely: for the purpose of computing tax on a later gift or on the estate, the allowance and the lowest bands of the scale are worked out as if that earlier gift had never happened (Article 784; the recall period runs for fifteen years from the gift). In practice this means the €100,000 parent-to-child allowance, and the tax-free bands beneath it, replenish in full every fifteen years. A parent who gives €100,000 to a child today can give a further €100,000 to the same child free of tax fifteen years and one day later, and again after another fifteen years.

Because the clock resets, the reliefs described in the rest of this article are not one-off opportunities but repeating ones. A gift of cash, a gift of property, a gift of the bare ownership of an asset — each starts its own fifteen-year clock against the same allowance, and each falls out of account once fifteen years have passed. This is why French estate planning is, above all, an exercise in starting early and giving in stages. The widget below shows how the clock runs for a single parent-and-child pair, and how it multiplies across a couple with several children.

Staged lifetime gifting

The most straightforward way to reduce French inheritance tax is to give assets away during your lifetime, in tranches, using the allowances that refresh every fifteen years. Each parent may give each child up to €100,000 free of gift tax, this allowance being available in the direct line between an ascendant and a descendant (Article 779 of the General Tax Code). Because the allowance applies per parent and per child, a married couple with two children can pass €400,000 to the next generation in a single round of gifts entirely free of tax — €100,000 from each parent to each of the two children — and repeat the exercise fifteen years later.

On top of that personal allowance, French law adds a separate exemption for gifts of cash within the family. A gift of a sum of money made to a child, grandchild or great-grandchild — or, where there are no such descendants, to a niece or nephew — is exempt from gift tax up to €31,865 every fifteen years, on two conditions: the donor must be under 80 at the date of the gift, and the recipient must be at least 18 or emancipated (Article 790 G of the General Tax Code). This cash exemption sits on top of the €100,000 allowance and uses its own fifteen-year clock, so a parent under 80 can give a child of full age €131,865 in one operation without any tax — €100,000 under the personal allowance and €31,865 as an exempt family cash gift.

How the allowances stack and repeat

The power of staged gifting comes from combining these allowances across both parents and repeating them across the decades. Grandparents can also give each grandchild up to €31,865 free of tax under a separate allowance (Article 790 B of the General Tax Code), which is useful where the aim is to pass value down two generations at once. Every one of these figures is anchored to the fifteen-year recall: give within the limit, wait for the clock to run, and give again. A family that begins when the parents are in their fifties can move a very large estate to the next generation over two or three cycles, at little or no tax, while retaining full control of timing and amounts.

What matters is to document each gift correctly and to date it certainly, because the fifteen-year clock only protects a gift that can be proved to have a firm date. A gift of money can be declared to the tax authority by the recipient on the appropriate form; a gift of real estate must pass through a notaire by authenticated deed. Getting the paperwork right is not a formality — it is what fixes the start of the fifteen-year period and secures the allowance for the future.

Assurance-vie as a tax-efficient wrapper

Life assurance (assurance-vie) is the single most widely used estate-planning wrapper in France, because the capital it pays out on death sits largely outside the ordinary succession and carries its own, generous, tax allowances. The sum payable on the death of the insured to a named beneficiary does not form part of the estate (Article L.132-12 of the Insurance Code), and it escapes the civil rules on bringing gifts back into account and on cutting back gifts that encroach on the reserved portion (Article L.132-13 of the Insurance Code). The one important limit is that premiums which were "manifestly excessive" given the policyholder's means can be challenged and pulled back into the estate.

The tax treatment turns on the age of the insured when each premium was paid. For premiums paid before the insured reached 70, each named beneficiary enjoys an allowance of €152,500, and the excess is taxed at a flat 20%, rising to 31.25% on the part of a beneficiary's share above €700,000 (Article 990 I of the General Tax Code). That €152,500 allowance is granted per beneficiary, across all policies combined, and it is completely separate from the €100,000 family allowance described above — which is what makes assurance-vie so effective for passing capital to children, or indeed to people who are not close relatives and who would otherwise face the 60% rate.

Premiums paid after age 70

Premiums paid after the insured turns 70 follow a different and less generous regime. Those premiums are brought within inheritance tax, but only the premiums themselves — not the investment growth on them — and they share a single allowance of €30,500 across all beneficiaries and all policies combined (Article 757 B of the General Tax Code). Above that €30,500 the premiums are taxed at the ordinary inheritance-tax rates according to the family relationship, while the gains earned on those late premiums remain exempt. The practical planning point is clear: fund the policy before 70 to capture the €152,500-per-beneficiary allowance, and treat post-70 premiums as a smaller, supplementary opportunity aimed mainly at the tax-free growth.

Two design choices decide whether a policy delivers these advantages. The first is the beneficiary clause: only a properly drafted beneficiary clause secures the favourable treatment, and a policy left without an identifiable beneficiary falls back into the estate and is taxed in the ordinary way. The second is who is named and in what capacity — a clause can even be split between a life interest and bare ownership across a spouse and children, so the same capital serves the survivor for life and passes to the children afterwards. These are decisions to take with a notaire, because a careless clause can undo the entire tax benefit.

Splitting ownership (usufruct / démembrement)

Splitting the ownership of an asset (démembrement de propriété) is one of the most efficient ways to pass French property to the next generation at a reduced tax cost. The idea is to divide full ownership into two parts: a life interest (usufruit), the right to use the asset and take its income for life, and the bare ownership (nue-propriété), the underlying title stripped of use. A parent typically gives the children the bare ownership now while keeping the life interest, so the parent goes on living in the house or receiving the rents, and the children automatically become full owners on the parent's death.

The tax advantage is built into the way French law values each part. When ownership is split, the value of the life interest and of the bare ownership is fixed by a statutory scale based on the age of the person holding the life interest at the date of the transfer (Article 669 of the General Tax Code). The younger the life tenant, the more the life interest is worth and the less the bare ownership is worth; as the life tenant ages, the bare ownership grows. Because a lifetime gift of bare ownership is taxed only on the bare-ownership value under this scale, the gift tax is charged on a fraction of the full value — and when the life tenant dies, the children's bare ownership swells into full ownership with no further tax to pay.

The scale rewards acting early. A parent of 61 who gives away the bare ownership of a €500,000 property is taxed on a bare-ownership value of 60%, that is €300,000; the same gift made at 55, in the 51-to-60 band, is taxed on only 50%, that is €250,000 (Article 669 of the General Tax Code). Combine the split with the €100,000 per-child allowance and the fifteen-year reset, and a substantial property can be handed down over time for very little tax. At the parent's death the life interest simply extinguishes and the children hold the whole, without the reconstitution of full ownership being treated as a fresh taxable transfer.

One trap deserves a specific mention. Where an asset is held in split ownership — the parent keeping the life interest and a presumptive heir holding the bare ownership — French tax law presumes, for inheritance-tax purposes, that the asset belongs in full to the life tenant's estate, unless the split was made by authenticated deed more than three months before the death and the bare ownership was valued on the Article 669 scale (Article 751 of the General Tax Code). The presumption is why a démembrement has to be set up properly, in good time, and through a notaire — an informal arrangement close to death will simply be taxed as if no split had happened.

The donation-partage

The gift-and-division deed (donation-partage) is a notarial act by which a parent both gives assets to the children and divides those assets between them in the same deed. Its great advantage over a series of separate gifts is that it freezes values. Assets given by a donation-partage to all of the reserved heirs, with no reservation of a life interest over a sum of money, are valued for the purpose of computing the reserved portion at the date of the deed itself, not at the date of the parent's later death (Article 1078 of the Civil Code; confirmed by the Cour de cassation, Cass. civ. 4 November 2015, no. 14-23662).

That freeze is worth a great deal in a family that owns assets likely to appreciate. With an ordinary lifetime gift, the asset is normally brought back into the reserve calculation at its value on the day the parent dies, so all the growth between the gift and the death is counted in — which can upset the balance between children and expose the gift to being cut back. A donation-partage locks the values as at the date of the deed, so future growth belongs cleanly to the child who received the asset and does not disturb the shares. This makes it the natural tool for handing on a business, a portfolio or a property that is expected to rise in value.

A donation-partage also combines with everything else in this article. Each child's share attracts the €100,000 allowance, the transfer can be made in bare ownership only — with the parent keeping the life interest under the Article 669 scale — and the whole operation is governed by the fifteen-year recall, so the values and allowances used are recalled if the parent dies within fifteen years and drop away once that period has passed. It can even be arranged across two generations, allotting shares directly to grandchildren where the children agree, which pushes value further down the family in a single deed. Because it is both a gift and a division, it also reduces the risk of a later dispute among the children about who received what and at what value.

Business relief (Pacte Dutreil)

Where the estate includes a family company or business, the Pacte Dutreil is the most powerful relief in French law: it exempts three quarters of the value transferred from gift and inheritance tax. The gift or inheritance of shares in a company carrying on a genuine trading, commercial, craft, agricultural or professional activity can be exempt from transfer tax on 75% of their value (Article 787 B of the General Tax Code); the same 75% exemption applies to the transfer of the assets of a sole-trader business (Article 787 C). Only one quarter of the value is brought into tax, and the ordinary allowances then apply to that quarter.

The relief is not automatic. It rests on a collective undertaking to retain the shares (engagement collectif de conservation), entered into by the transferor together with other shareholders, followed by an individual retention undertaking by each recipient, and a requirement that one of the group actually run the company. These conditions are why the Dutreil arrangement must be put in place well before a transfer is contemplated: the exemption depends on commitments that have to exist at the time of the gift or death and be honoured afterwards, and a breach unwinds the relief.

The extra reduction for a donor under 70

Dutreil offers a second, stacking benefit when the business is passed on by lifetime gift rather than left at death. A gift in full ownership of company shares or of a sole-trader business that qualifies under the Dutreil regime attracts a further 50% reduction in the gift tax due, provided the donor is under 70 at the date of the gift (Article 790 of the General Tax Code). This reduction is applied after the 75% exemption, so a business owner who gives in full ownership before turning 70 combines a three-quarters exemption of the value with a halving of the tax on the remaining quarter — an outcome that is simply not available if the business is held until death.

The interaction of the two reliefs is what makes early, structured succession of a family business so much cheaper than doing nothing. Take shares worth €1,000,000: the Dutreil exemption removes €750,000, leaving €250,000 in charge; the €100,000 allowance reduces that to €150,000; and where the donor is under 70 and gives in full ownership, the tax on that balance is then halved again. The same shares left to die with the owner would be taxed on their full value at death, on the progressive scale, with only the ordinary allowances to soften the blow. Business relief rewards the owner who plans the handover, and penalises the one who leaves it to the estate.

Common mistakes

The reliefs described above are generous, but each has a condition or a timing rule that quietly defeats the unwary, and the most expensive mistakes in French estate planning are almost always avoidable ones. The recurring error is to start too late: because every allowance is tied to the fifteen-year recall, a family that begins giving in the last years of a parent's life captures only a fraction of what a family that began fifteen or thirty years earlier would have passed tax-free. Time is the resource the tax system is quietly rewarding, and it cannot be bought back.

A second common error is a botched split of ownership. A démembrement set up informally, or close to death, runs straight into the presumption that the asset belongs in full to the life tenant's estate unless the split was made by authenticated deed more than three months before the death and valued on the statutory scale (Article 751 of the General Tax Code). The relief that a well-timed split delivers is entirely lost if the deed is late or informal. In the same vein, funding a life-assurance policy too heavily in old age, or with sums out of proportion to the policyholder's means, exposes the "manifestly excessive" premiums to being pulled back into the estate and taxed (Article L.132-13 of the Insurance Code).

Third, families forget the reserved portion. None of these tools allows a parent to override the fixed share that French law reserves for the children, and a gift or a beneficiary clause that leaves a child with less than their reserve can be attacked after the death. Planning that reduces tax has to be built inside the reserve, not around it. Finally, paperwork and dating are treated as afterthoughts when they are in fact the foundation: an undocumented cash gift has no certain date, so the fifteen-year clock never reliably starts, and the allowance the family thought it had used may not be recognised. Every one of these mistakes is cheaper to avoid in advance than to argue about after a death.

Frequently asked questions about reducing French inheritance tax

How can I reduce French inheritance tax legally?

By using the reliefs French law provides, in good time and in combination: staged lifetime gifts within the €100,000 per-child allowance (Article 779 of the General Tax Code), family cash gifts of up to €31,865 (Article 790 G), life-assurance wrappers with their €152,500-per-beneficiary allowance (Article 990 I), splitting ownership so only the bare ownership is taxed (Article 669), the gift-and-division deed that freezes values (Article 1078 of the Civil Code), and business relief exempting 75% of a family company (Article 787 B). Each has its own conditions and its own fifteen-year clock, and they are meant to be used together.

How often can I gift tax-free in France?

Every fifteen years. French law "recalls" gifts made within the previous fifteen years when computing tax on a new gift or on the estate, so the allowances and the lowest tax bands used on an earlier gift are treated as still used until fifteen years have passed (Article 784 of the General Tax Code). Once a gift is more than fifteen years old it falls out of account, and the €100,000 per-child allowance and the €31,865 cash exemption are available again in full.

Does assurance-vie reduce inheritance tax?

Yes, substantially. The capital paid to a named beneficiary on the death of the insured sits outside the estate (Article L.132-12 of the Insurance Code), and for premiums paid before the insured turned 70 each beneficiary has a €152,500 allowance, with the excess taxed at 20% and at 31.25% above €700,000 (Article 990 I of the General Tax Code). Premiums paid after 70 fall under inheritance tax but share only a €30,500 allowance, and only the premiums, not their growth, are taxed (Article 757 B).

How does gifting bare ownership save tax?

Because only the bare-ownership value is taxed. When ownership is split, French law values the life interest and the bare ownership by a statutory scale keyed to the life tenant's age (Article 669 of the General Tax Code): for a life tenant aged 61 to 70 the bare ownership is worth 60% of the full value, and less if the life tenant is younger. A parent who gives the children the bare ownership now, keeping the life interest, pays gift tax on that reduced value; on the parent's death the children become full owners with no further tax.

Can I avoid French inheritance tax by leaving everything to my spouse?

A surviving spouse or PACS partner is entirely exempt from French inheritance tax on what they inherit at death (Article 796-0 bis of the General Tax Code), so a transfer to the survivor is tax-free — but it only defers the problem, because the assets are then taxed when they pass from the survivor to the children. Effective planning uses the spouse's exemption alongside gifts to the next generation, life assurance and, where relevant, a split of ownership, so that value reaches the children with the least overall tax.

Does gifting a family business reduce the tax?

Dramatically. A Pacte Dutreil exempts 75% of the value of qualifying company shares or a sole-trader business from gift and inheritance tax (Articles 787 B and 787 C of the General Tax Code), and where the owner gives the business in full ownership before turning 70 there is a further 50% reduction in the gift tax on the remaining quarter (Article 790). The relief depends on collective and individual retention undertakings, so it has to be put in place before the transfer.

How our French lawyers help reduce French inheritance tax

Reducing French inheritance tax is a matter of sequencing the right reliefs, in the right order, early enough for the fifteen-year clock to work — and of doing so inside the reserved portion that French law protects for the children. We advise owners and families on a complete plan: staged gifts and family cash gifts within the allowances, life-assurance clauses drafted to capture the €152,500 and €30,500 allowances, splits of ownership set up by authenticated deed in good time, gift-and-division deeds that freeze values, and Pacte Dutreil arrangements for a family business. We also coordinate the notarial deeds that make each step effective and correctly dated.

This article is for general information only. It does not constitute legal advice and does not create a lawyer-client relationship. How French inheritance tax applies depends on the family, the assets, their value and location, the age of those involved, and the deeds and allowances used. Contact our French lawyers for advice on your situation before acting.