Actualité - How to Avoid Inheritance Tax on Real Estate in France?

Transferring real estate to your loved ones can result in significant inheritance taxes if no strategy is anticipated.

Given the complexity of the French inheritance tax system, it is crucial to understand the applicable rules and identify legal options that can reduce the financial burden. Donations, property dismemberment, life insurance, or a family real estate company (SCI) are just some of the available tools to optimize transmission and protect heirs.

Planning your estate in advance also means securing your assets and reducing the tax burden for your family (spouse, children, siblings, etc.) or close relatives. Below are the most effective ways to either avoid or reduce inheritance taxes on real estate.

Understanding Inheritance Taxes in France

In France, passing on real estate following a death usually involves paying inheritance taxes. These are taxes levied by the State on the share of the deceased's estate received by each heir. The amount due depends on the property's value, the familial relationship between the deceased and the heir, and any applicable tax allowances.

For real estate succession, the property must be appraised at fair market value on the date of death. This value serves as the basis for calculating the "taxable amount" under the inheritance tax scale. Additional notary fees may apply depending on the act of transfer. Real estate inheritance may be taxed progressively, which makes early planning all the more important.

It is also essential to comply strictly with the “inheritance declaration” requirements. Delays or errors can lead to penalties. Heirs generally have six months (or twelve if the death occurred abroad) to file the declaration and pay the taxes. This process is supervised by a notary who ensures legal compliance and tax accuracy.

What Is an Inheritance Tax?

Inheritance tax is a levy on the transfer of wealth triggered by the death of a property owner. It applies to the “share of inheritance” received by each beneficiary and concerns both movable assets (money, investments) and immovable assets (houses, apartments, land).

This “inheritance tax” is based on the value of the transferred assets. French law distinguishes “direct lineage” succession (children, grandchildren) from collateral or third-party succession, with higher tax rates applied to the latter. Taxation therefore depends on how close the familial link is.

The notary plays a central role: issuing a certificate of inheritance, compiling an inventory of the estate, and filing the inheritance declaration. These documents are the basis for calculating the taxes due. Without this process, heirs cannot become legal owners of the deceased’s property.

Who Has to Pay Inheritance Taxes?

“Legal heirs” or designated beneficiaries in a will are generally responsible for paying inheritance taxes. The amount varies according to their “taxable share” and their relationship with the deceased.

Direct descendants (children and grandchildren) benefit from substantial allowances.
Siblings, nephews, nieces, or unrelated individuals face significantly higher tax rates.
The “surviving spouse” or PACS partner is fully exempt from inheritance taxes under the 2007 TEPA law.
In contrast, unmarried partners receive no exemption and may be taxed at 60%, unless special arrangements (e.g., life insurance) apply.

French “inheritance tax law” clearly favors early planning. Failing to prepare can result in substantial taxes for heirs. Each case should be assessed individually with professional guidance to ensure optimized property transmission.

Making Use of Legal Allowances and Exemptions

To reduce the “inheritance tax” burden on real estate, it is crucial to understand the available tax allowances and exemptions established by law.

These mechanisms help lower, or even eliminate, the taxable base used to calculate the heirs’ tax liabilities. In practice, the “taxable portion” is reduced by applying these deductions before the progressive tax scale is applied.

The most common “direct-line allowance” is currently €100,000 per parent per child, renewable every 15 years. This means a parent can transfer up to €100,000 to each child tax-free.

Other allowances apply based on specific family circumstances. In parallel, some assets or forms of transfer benefit from partial or full “exemptions,” provided certain conditions are met.

Understanding these mechanisms is key to effective “estate planning.” They are essential tools for “anticipating succession” and “optimizing property transfer” while minimizing tax exposure.

Tax Allowances Based on Family Relationship

The amount of the “inheritance allowance” is directly tied to the closeness of the family relationship between the deceased and the heir. The closer the relationship, the higher the allowance.

For example:

Each child can receive up to €100,000 tax-free.
Siblings benefit from an allowance of €15,932.
Nephews and nieces are limited to €7,967.

Beyond immediate family, no exemptions apply, making “inheritance between children” far more favorable than between friends or unmarried partners.

The “tax calculation” is made after applying the relevant allowances. Any amount exceeding those thresholds is subject to progressive tax brackets. Taking these into account is crucial for implementing a well-structured “direct transmission” of real estate.

Partial and Full Inheritance Tax Exemptions

In some situations, the law provides for full or partial “inheritance tax exemptions.” For example, the “surviving spouse” or PACS partner is fully exempt from paying inheritance tax.

Other exemptions apply under specific conditions, such as for the main residence when the heir was living there at the time of death and does not own another property.

Special exemptions also exist for “disabled individuals” and for transfers of “business assets” under a “Dutreil pact.” Additionally, certain “family businesses” or “agricultural land” may qualify for favorable tax treatment. These benefits usually require a minimum holding period or a commitment to retain the asset.

Identifying and leveraging these fiscal opportunities is essential to reducing inheritance tax liability. However, it often requires professional assistance and a good grasp of tax law to ensure proper execution.

Planning Lifetime Succession to Reduce Inheritance Costs

Transferring real estate during your lifetime is one of the most effective ways to lower or avoid “inheritance costs.”

By acting early, you can take advantage of legal and tax tools like staggered donations, dismemberment of ownership, or family sharing donations. These options help structure the transfer over time while maintaining control of the property.

“Lifetime succession” also allows the use of “inheritance allowances” that reset every 15 years, optimizing the tax burden for “child heirs.” This strategy significantly reduces the taxable base and can lead to full or partial “inheritance tax exemptions.”

With increasing scrutiny on “inheritance tax policy,” early planning helps avoid excessive “succession taxes” and safeguards family wealth.

Donation and Dismemberment: Strategies to Avoid Inheritance Costs

Donation with dismemberment is a proven estate planning strategy. It involves transferring the “bare ownership” of a property while retaining the “usufruct”—the right to live in or collect income from the property (e.g., rental income).

This significantly lowers the property’s taxable value at the time of transfer, and thus reduces future “inheritance taxes” compared to full ownership transfer.

The bare ownership’s value depends on the donor’s age at the time of transfer. The younger the donor, the greater the portion transferred. This is particularly useful for passing property to children while keeping a lifetime usage right—especially relevant in “inheritance of a parents’ house.”

The tax advantage is twofold: the “inheritance allowance” applies to a reduced value, and the usufruct naturally extinguishes upon the donor’s death without triggering extra tax. This strategy aligns with “direct-line succession” while easing the “tax burden on real estate inheritance.”

Lifetime Succession: Transferring Without Increasing Tax Pressure

“Lifetime succession” allows donors to plan transfers over time to fully utilize available allowances. Each parent can give up to €100,000 to each child every 15 years without triggering taxes. This also applies to “SCI shares,” cash, or real estate.

It’s an effective solution for cases like: “I can’t afford the notary fees for an inheritance,” or “inheritance tax on a €200,000 house.” Planning ahead prevents forced sales to cover tax liabilities.

Successive donations can also be accompanied by a “family pact” or “shared donation,” which provide legal clarity and prevent disputes. This approach protects both heirs and donors while offering a “tax planning” opportunity with potential for “inheritance tax exemptions” over several transfer cycles.

Finally, early planning helps account for anticipated legal changes, such as those expected in the “new 2025 inheritance law,” which could affect allowance thresholds or tax rates. In short: it’s better to transfer early than to be taxed later.

Effective Tools to Reduce Real Estate Inheritance Taxes

Beyond donations and property dismemberment, other legal and fiscal mechanisms can help reduce the inheritance tax burden on real estate assets. Two particularly popular tools in estate planning are life insurance and the family real estate company (SCI). These instruments offer flexibility and allow for partial circumvention of standard inheritance tax rules.

They help protect loved ones, organize property transfer according to the owner's wishes, and significantly reduce inheritance tax for children, especially in cases involving substantial real estate assets. The key is to use the specific legal frameworks granted to these structures wisely in order to benefit from partial inheritance tax exemptions, while maintaining control over the property.

Life Insurance: A Key Investment to Reduce Inheritance Costs

Life insurance is an essential tool for estate planning, offering both asset transfer and tax relief. Funds placed in a life insurance policy are generally excluded from the estate’s taxable assets—provided the beneficiary clause is properly drafted.

Each designated beneficiary can receive up to €152,500 without incurring any inheritance tax, provided that the premiums were paid before the policyholder’s 70th birthday. Above this age, specific tax rules apply, but they remain more favorable than the standard inheritance tax scale applicable to real estate. As such, life insurance is an effective way to complement or anticipate a real estate transfer, especially when other taxable assets are involved.

Moreover, life insurance allows for the inclusion of non-heirs (such as an unmarried partner, friend, or association) without facing the punitive tax rates typically applied to these transfers. This option also addresses common concerns such as “does the surviving spouse have to pay inheritance tax?” or “inheritance tax and civil unions (PACS),” as it enables direct, flexible, and tax-efficient asset transfer.

Family SCI: Transfer Real Estate While Maintaining Control and Minimizing Inheritance Tax

Creating a family real estate company (SCI) is another strategic approach to facilitate the transfer of property while optimizing tax liability. It removes the property from the traditional undivided estate and converts it into shares, which are easier to distribute gradually, in accordance with inheritance tax allowances.

In practical terms, parents can transfer SCI shares to their children every 15 years, tax-free, up to €100,000 per child. This strategy is particularly suited for situations involving a family home, often valued around €200,000 or more. It directly addresses common concerns such as “inheritance tax on a €200,000 house” or “inheritance tax on parents’ home.”

Additionally, the SCI allows for clear management rules, helps prevent conflicts among heirs, and enables the owner to retain control over the use of the property after the transfer. This is especially valuable in cases with multiple children, blended families, or complex joint ownership scenarios, which frequently lead to legal deadlock. The inheritance tax regime applied to an SCI can also be advantageous when carefully planned.

With the right legal structure and guidance, the SCI becomes a powerful estate planning tool that combines legal flexibility, tax optimization, and family harmony.

Conclusion – Key Takeaways

Inheritance taxes vary based on family relationship and the value of the property.
Significant tax allowances exist, especially in direct lineage (€100,000 per child every 15 years).
Bare ownership donations and property dismemberment allow gradual transfer while reducing the taxable base.
Life insurance is a powerful tool to transfer up to €152,500 per beneficiary outside of the taxable estate.
Creating a family SCI allows the transmission of real estate shares with controlled estate management.
Planning your estate during your lifetime is essential to avoid excessive taxation and protect family balance.
Need advice on preparing the inheritance and transfer of your real estate assets? Contact your Optimhome advisor to assist you, answer your questions, or conduct a property valuation of your house, apartment, land, or estate.

FAQ – Common Questions About Inheritance Tax on Real Estate

How can I reduce inheritance tax on real estate?

By anticipating the transfer using donations, property dismemberment, life insurance, or a family SCI, while leveraging available tax allowances.

How can I transfer real estate without inheritance tax?

By making donations within tax-free limits every 15 years, through a structured SCI or life insurance policy, or by using legal exemptions based on family relationship.

What are the inheritance tax rates for real estate?

They depend on the property's value, the relationship to the deceased, and applicable allowances. Beyond those limits, progressive rates apply—up to 45%.