Inheritance Taxes: An Overestimated Levy with Significant Optimization Potential

A Distorted View?

The study's results are clear: more than half of the French population believe that inheritance taxes are much higher than they actually are. In the collective imagination, the State systematically claims a significant portion of transmitted wealth. However, the average rate for direct inheritances is actually around 5 to 10%, far from the imagined figures. It's beyond 300,000 euros in inheritance that the tax burden really starts to rise. In fact, the French Court of Auditors has indicated, based on real declarations, that the average tax rate goes from about 10% for a 300,000-euro inheritance to 20% for an estate worth a million euros. It reaches around 30% when the succession exceeds 2.5 million. In other words, it is not the “standard” inheritance that bears the brunt of tax pressure, but larger-scale transfers that could benefit from more planning.

It's in indirect successions where things become more contentious. When the familial relationship is more distant—such as nephews, nieces, partners, stepchildren, daughters-in-law, or sons-in-law—the nature of taxation changes. The rates surpass 30% once 50,000 euros is received, exceed 40% when they reach 100,000 euros, and approach 60% in some cases. In a society marked by blended families, civil unions, late marriages, or non-traditional transfers, this taxation can lead to extremely burdensome financial situations.

Patrick Thiberge, president of Meilleurtaux Placement, highlights this gap: « We regularly see clients who want to pass on their wealth to a daughter-in-law or a partner's child. Without proper advice and arrangements, the cost can be very high. The tax system has not yet caught up with families’ real lives. » This contrast between perception and reality, between average and marginal taxation, creates an area of confusion where the transfer is rarely anticipated. If poorly prepared, it mechanically becomes costly.

An effective toolbox

If inheritance taxes are perceived as overwhelming, it's also because the solutions to mitigate them remain largely unknown. Yet, French law provides a range of tools that, when used correctly, can significantly optimize the transfer of assets. Life insurance is the cornerstone: it is the preferred investment for the French to pass on wealth—and the most effective. Contributions made before the age of 70 benefit from an exemption of 152,500 euros per beneficiary, outside of the estate, while contributions made after 70 fall under a more restrictive but still advantageous framework. Then there are less mainstream but equally powerful mechanisms: the capitalization contract, which retains its fiscal precedence and can be transferred with partial inclusion in the estate, or the Retirement Savings Plan (PER), where the accumulated savings can be excluded from the estate in certain scenarios, particularly when involving annuities or depending on the age at passing.

More specialized tools also exist: forestry groups, which benefit from specific exemptions and are transferred under advantageous conditions, or schemes that allow investment in real assets while optimizing tax obligations. These mechanisms are often reserved for guided investors, as they require a good understanding of the rules and associated risks. But asset transfer is not solely about the nature of the assets. It also involves structuring the estate. Lifetime gifts, whether in full ownership or with dismemberment, offer great flexibility. Dismemberment, in particular, allows for the transfer of the bare ownership while retaining the usufruct, significantly reducing the taxable base. In many instances, it enables a gradual transfer without affecting the donor's income.

Beyond the tools, the overall strategy is what matters: spacing out the transfers over time, properly calibrating exemptions, intelligently distributing beneficiaries, and combining life insurance, capitalization, and gifts. « With proper preparation and guidance, an inheritance can largely avoid the brunt of inheritance taxes, » notes Patrick Thiberge. The problem, therefore, is not the tax itself but the lack of guidance. The public debate continues to focus on the level of inheritance taxes. However, the major issue lies elsewhere: in the extreme heterogeneity of situations and the lack of awareness of transfer mechanisms. With a minimum of foresight, families can significantly reduce their tax burden. But they must first be aware that these solutions exist.