TVA = Taxe sur la Valeur Ajoutée (French VAT)

French VAT is payable in different circumstances and at different rates to VAT in England. One important difference is that in England VAT is not payable on new build property while in France it is. French VAT is payable on new build properties and therefore has been the driving force behind the popularity of leaseback schemes designed to enable the French VAT to be recovered by the Purchaser under defined circumstances and situations. The subject of French leasebacks is covered in more detail elsewhere on this website.

French VAT is generally, currently, payable at 19.6%. It can be payable at a reduced rate in certain circumstances such as when rent is being received from property rental under a leaseback scheme. French VAT is payable upon the resale of a new property by the Purchaser of new property if the property is resold within 5 years of the original purchase VAT can also be demanded by the French fiscal authorities on the resale of a renovated property within 5 years of the completion of the renovations. Reduced rates of VAT, 5.5%, can apply to certain aspects of renovation projects in certain circumstances. The circumstances are determined by the VAT tax officials and are open to appeal. This law is applicable to January 31, 2010. VAT is a complicated and an evolving tax and professional advice is always recommended to take into account the individual circumstances of the property owner. French Inheritance tax (droits de succession) As mentioned above under the heading of capital gain tax, French inheritance tax is charged on any disposal made inter vivos by way of gift or on testamentary disposition. In the event of a person dying intestate his estate will also be liable inheritance tax.

The principal characteristic which separates out French from British inheritance tax, is that French inheritance tax is donee based whereas British inheritance tax is donor based. What this means is that the French Inland Revenue taxes a gift or a disposition in the hands of the beneficiary not in those of the donor or testator (or intestate).
This is because, unlike in Britain, different levels of kinship with the donor or testator attract different levels of inheritance tax. In Britain, there are a number of exemptions to inheritance tax, such as (inter alia) transfers inter vivos and by will between spouses, the 7 years potentially exempt transfer (PET), and a fairly simple rate structure for the tax, namely, a nil rated band on the donor's or testator's disposal or estate up to a threshold of £300,000, and, thereafter, two rates , a 20% lifetime rate and a 40% death rate, making it relatively easy to look to the estate (or disposal) of the donor or testator for taxation.

The French system, by reason of a more complicated rate structure, lends itself better to individualized taxation in the hands of the beneficiaries. Furthermore, by taxing inherited wealth in the hands of the recipients rather than looking at the estate as a whole, and given that inheritance tax is graduated , the French system achieves a taxation of the parts which is less heavy than if the estate where taxed as one entity. This is a deliberate policy which reflects French society's attachment to the transmission of family based wealth, and it has survived the vicissitudes associated with various socialist governments over the last 25 years.

In fact, the new conservative government which was returned to power in June 2007 following the election of Nicholas Sarkosy to the presidency, has just enacted on 22nd August 2007 a new statute which goes a considerable way towards taking certain categories of beneficiaries out of the scope of inheritance tax altogether, or substantially reducing their liability to it. Following this new law, testamentary dispositions (but not inter vivos gifts) between spouses are made exempt from inheritance tax as well as testamentary dispositions between civil partners bound by a "Pacte Civil de Solidarité" (PACS). Inter vivos gifts or testamentary dispositions to children are nil rated up to 150,000 Euros for each child. Furthermore, each grandparent may make a tax free 30,000 Euros inter vivos gift to each of its grandchildren provided the grandparent is over 65 and the grandchild 18 or more. This new rules are imbedded into earlier provisions relating to inheritance tax of which a few are now listed:

• French inheritance tax operates a death rate and a life time rate.
• The death rate as indicated earlier varies according to the degree of kinship of the beneficiary with the deceased
• If the beneficiary is a descendant of the deceased the rate is progressive and rise from 5% to a maximum of 40% on amount in excess of 1,700 000 Euros (the first 150,000 Euros are charged at nil rate, see supra)
• If the beneficiary is a not related by blood to the deceased or its surviving spouse, the death rate is a flat rate of 60%
• All these rates are halved if property is transferred by way of inter vivos gift provided the donor is less than 70 years old. This concession drops to 30% if the donor is 70 years old but less than 80.

The nil rate band applicable on testamentary dispositions (or intestate succession) to descendants or a partner in an official partnership (PACS), applies also where the descendant or partner receives the disposition by way of inter vivos gift. This relief carries through to subsequent gifts to the same donee or donees, providing there is an intervening period of six years between gifts.