A bill was tabled on 9 March 2021 by "Les Républicains" MPs to reduce taxation on inheritances and gifts to children (more generally in the direct line), spouses or PACS partners.
People are inheriting later and later in France. The average age of heirs is currently 50, whereas it was 42 in 1980 and will be 58 in 2050. In view of this and the difficult situation created by the Covid-19 health crisis, the MEPs want to boost the economy by releasing French people's savings.
The inheritance transfer tax applied to inheritances quickly proves to be very onerous for heirs because, beyond an allowance based on family relationship and which peaks at 100,000 euros per parent and per child, the rates quickly soar to a maximum of 45% for direct heirs and 60% for unrelated heirs.
The MEPs therefore believe that "in these circumstances, and against the backdrop of the economic crisis linked to Covid-19, it is important to reduce inheritance tax and make it easier to give gifts, so that wealth can be passed on more quickly to younger people and the French economy can be revitalised".
In France, a taxable estate of €1 million passed on to a child costs around €250,000 in inheritance tax.
Reducing inheritance tax
Inheritances are currently taxed in the direct line at up to 45% from €1,805,677, after an allowance of €100,000 and then a rate of 20%, which represents the usual taxation of the main bracket (between €31,865 and €552,324).
From uncle to nephew, the rate is 55% with virtually no allowance. The unrelated rate is 60%. In order to moderate these excessive rates, the MPs behind this proposed law wish to :
- reduce the marginal rate for direct descendants to 30%, with a main rate of 15%;
- reduce the standard rate for other family successions;
- reduce the rate to 40% for transfers between non-relatives;
- restore the allowance per parent and per child of €200,000 instead of the current €100,000;
- and indexing the rates.
Exempting principal residences
In the vast majority of cases, the main residence is the deceased's main asset. Currently, on the first death of a couple, the main residence is included in the inheritance tax base with only a 20% allowance. As a result, heirs other than the spouse often find themselves having to pay inheritance tax on a property that they have nothing to do with, since the surviving spouse usually continues to live in the same residence, opting for full usufruct.
The MEPs are therefore proposing to exempt the main residence completely from inheritance tax on the first death.
Abolish partition duty
Partition duty is levied at a uniform rate of 2.5% on all divisions of joint property (inheritance, divorce, liquidation, etc.). In the case of inheritance, it is added to inheritance tax and represents a significant sum that all heirs must pay, including those who are supposed to be tax-free.
In addition, to avoid paying this duty, it is becoming increasingly common to leave property in joint ownership or to carry out "de facto" divisions, with all the legal uncertainty that this entails.
The proposed law therefore provides for the pure and simple abolition of partition duty, at least in the case of inheritance or the liquidation of a marital community.
Exempt gifts between spouses from transfer duties
The surviving spouse is exempt from inheritance tax, while gifts between spouses remain curiously subject to gift tax (with an allowance of €80,000, followed by a scale almost identical to that for direct gifts).
We therefore propose total exemption for gifts between spouses.
Set a two-year time limit for tax reminders
At present, any gift made less than fifteen years before the donor's death must be reintegrated for tax purposes into the donor's estate. MEPs believe that this period is too long, preventing families from adopting any long-term strategy for passing on their assets.
The proposed law envisages reducing this period to two years to further speed up transfers.
Increasing the exemption for gifts of money to €100,000 every five years
To ensure that savings are better passed on to younger generations, Article 9 proposes to raise the limit on gifts of money to €100,000 every five years. These donations can be made by cheque, bank transfer, money order or cash. Each child could therefore receive up to €100,000 tax-free from each of his or her parents, grandparents and great-grandparents.
