You’ve planned your move to France meticulously. The visa is ready, your bags are packed, and you even have an idea of what your French income tax bill will look like.
But what if you receive an inheritance while a tax resident of France? Does France tax a US inheritance?
Unlike the US, which taxes the estate, France taxes the heir, and the rates can be up to 45%!
Below we’ll take a look at the US-France Estate Tax Treaty and how it interacts with France’s domestic inheritance laws.
Let’s look at a common example.
Disclaimer: This article is for general informational purposes only and should not be considered legal or tax advice. Cross-border estate taxation is complex, and every situation is different. Always consult a qualified professional before making decisions based on your particular circumstances.
Example Scenario
Imagine the following:
- The parents are US citizens and have never lived in France.
- Their child is also a US citizen but has been a French tax resident for more than 10 years.
- The parents leave the child:
- a US brokerage account,
- US bank accounts,
- and a home in the United States.
Would France tax this inheritance?
Or would the US “tax” it? (The US estate tax threshold is currently $15 million.)
The answer depends on both French domestic law and the US-France Estate Tax Treaty.
French Domestic Law
Under Article 750 ter of the French Tax Code, France may tax worldwide inheritances received by an heir who has been a French tax resident for at least six of the previous ten years, even if the estate was located entirely outside of France.
Looking only at this rule, it can be concluded that France would tax the entire inheritance because the heir has lived in France for more than six years.
However, that’s only one side of the coin.
The Tax Treaty Change
France and the United States have an Estate and Gift Tax Treaty that’s designed to prevent double taxation and allocate taxing rights between the two countries.
Importantly, the treaty generally allocates taxing rights based on the deceased’s domicile or citizenship and the type of property involved, rather than where the heir lives.
This critical distinction is the other side of the coin.
Stocks and Cash
Article 8 of the treaty covers most intangible assets, including stocks, brokerage accounts, bank accounts, and cash.
In simplified terms, Article 8 generally provides that these assets are taxable by a country only if the deceased was domiciled in that country or was one of its citizens and the assets are taxable under that country’s domestic law.
Importantly, it does not allocate taxing rights based on where the heir lives.
In our example, the parents were US citizens living in the United States. That strongly suggests that the United States, rather than France, has the primary taxing right over the brokerage account and cash.
US Real Estate
The parents also left their child a home in the United States.
Real estate is governed by different treaty provisions than stocks and cash.
As would be expected, the US-France treaty generally assigns taxing rights over real property to the country where the property is located.
Since the home is located in the United States, the treaty gives the United States primary taxing right over that property.
What about the six-out-of-ten-year rule?
France’s tax code says that long-term French residents may be taxed on worldwide inheritances.
However, the French tax authority’s own administrative guidance explains that inheritance tax treaties generally allocate taxing rights without regard to the residence of the heirs and therefore prevent the application of the six-out-of-ten-year rule in most treaty situations.
In other words, where an inheritance tax treaty applies, the treaty may override France’s domestic rule.
The US-specific guidance does not expressly discuss this interaction, but it also does not contradict the general principle.
So will France tax the inheritance?
Based on our review of the treaty and the available French administrative guidance, there is a credible argument that:
- The US brokerage account and cash should be taxable under the treaty by the United States
- The US real estate should be taxable in the United States because of its location.
That would suggest France should not tax these assets merely because the beneficiary has lived in France for more than ten years.
Our View
Based on the treaty itself and the published guidance currently available, we believe that many inheritances received by Americans in France from relatives who remained in the US may not be subject to French inheritance tax, despite the six-out-of-ten-year residency rule.
We’ve also read many anecdotal accounts of Americans not owing any French tax on US inheritances, and even questioning if they need to be reported to France at all.
That said, we haven’t found a definitive answer published on an official site that outlines who has the ultimate taxation claim.
If you expect to receive a substantial inheritance from the United States while living in France, it’s worth consulting a tax adviser with experience in both US and French cross-border estate taxation. The treaty can significantly affect the outcome, but applying it correctly requires considering the type of asset, the deceased’s status, and the specific treaty provisions involved.
Questions? Comments? We’d love to hear from you in the comment section, or feel free to write us directly.
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