Sale of Property on Inheritance
25th May 2023
What tax rules apply on the sale of an inherited French property?
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Inheriting a property in France inevitably brings with it a liability to French taxes. The most important of these is likely to be inheritance tax (droits de succession) although each child is granted an allowance of €100,000 from each parent.
If liquidity rather than real estate is the priority amongst the heirs the property will need to be sold.
If so, then in addition to inheritance tax, capital gains tax is also potentially payable.
The calculation of the tax is the difference between the acquisition value and the sale value, less eligible expenses.
However, because the property has been inherited certain specific rules apply.
In particular, the sale price used will not be the one when the property was originally purchased by the parents.
In its place will be the value used for determination of the value of the estate for inheritance tax purposes.
Clearly, therefore any overestimation of the value of the property on the inheritance will increase liability to inheritance tax, but an underestimate will increase liability to capital gains tax!
When it comes to getting a valuation of the real estate for inheritance tax purposes many inheritors will look around for a sympathetic notaire or estate agent to give them the lowest valuation. Indeed, there is no legal obligation to even get a formal valuation on the property, although that may not always be accepted by a notaire.
In a notable court case in Paris several years ago, heirs sold the property of their deceased father for three times the figure that had been assessed for inheritance tax purposes.
Faced with a large capital gains tax bill (higher than would have been the bill for inheritance tax) they sought a retrospective alteration to the initial valuation, going even so far as to submit a revised inheritance declaration, enclosing a cheque for the new higher amount of inheritance taxes payable!
Although it is possible to obtain a revision of the inheritance tax declaration if you have over or underestimated the value of the property, the French tax authority resists such applications where it is merely being done for the purposes of reducing the tax bill.
Numerous court decisions in the past (including in the case above) have confirmed their right to do so, particularly where it arises subsequent to a sale contract actually being realised.
However, if the property is sold within 3 years of an inheritance tax declaration at a price lower than that declared for the inheritance, it is possible to submit a revised inheritance tax declaration, although there is no guarantee that it will be accepted by the tax office. You would still need to prove that the original valuation was excessive. Accordingly, you would need to take advice from the notaire.
Tax Rates
If the property is sold for less than the value used for the inheritance no more taxes are payable; if more, then the surplus will be liable to capital gains tax.
The applicable rate is 19% CGT plus 17.2% social charges, giving a total charge of 36.2%.
Non-residents from the EEA and the UK do not pay the social charges, but pay the solidarity tax of 7.5%, making a total of 26.5%.
Allowances for duration of ownership only strike in after 6 years.
Non-residents may also be liable for capital gains tax in their home country, as it the case for UK residents, although French tax paid can be set off liability at home.
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