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Living in France as a Retiree: Part 3: Taxes and Succession

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Don’t miss Part 1 and Part 2 of this series on Living in France as a Retiree

France has rather rigid laws, especially when it comes to taxation and succession. They are also quite unclear. Disclaimer: I am not an attorney, nor an accountant. However, I can inform any prospective retirees on issues to look out for. I used some of my own experience, but also that of other immigrants from the US to France with different financial and family situations.

Note of caution: French attorneys and tax accountants who deal with Americans tend to ask for a lot of money, and their advice is not always crystal clear. I don’t want to make a sweeping assumption, but this has been our experience.

Another note of caution: Laws change.

No Double Taxation

Who is a French tax resident? The French government uses several factors to determine whether or not you are a resident for tax purposes. A rough rule of thumb is that if you intend to spend more than 6 months of the year in France, you will probably be considered resident for tax purposes.

The good news is that there is a treaty between the US and France, and retirement income, at the very least, is not double-taxed.

Trusts

Many Americans have trusts. France does not recognize US revocable trusts as “transparent” for tax purposes, so every time you change or take a distribution of funds held in a trust, you will have to declare it to the tax authorities within 30 days. The penalties for not doing so are steep.

The current default position is that distributions are automatically treated as income and hence taxable. The onus is on you to prove that distributions are not income and thus not taxable, which means you will need a full accounting trail of the funds. If you have a revocable trust, you should consider removing any financial assets from the trust prior to moving to France.

Joint Ownership of Property

If you are buying property jointly (e.g., you and your spouse or partner), there are three ownership options:

1. En Indivision (Standard Joint Ownership)

This is the default and most common method. Each person owns a specific share (e.g., 50/50 or 60/40) based on their financial contribution.

  • Pros: Simple and flexible; reflects actual financial input.
  • Cons: If one (legal) partner dies, their share is subject to French inheritance laws. This means children (including those from previous relationships) automatically inherit a portion of that share, potentially making the surviving partner a co-owner with their children or stepchildren.
  • Best for couples with no children, or those who are comfortable with their children becoming immediate co-owners when one of the partners passes.

2. En Tontine (Survivorship Clause)

A specific clause is added to the sale deed stating that the survivor is deemed to have owned the entire property from the start. This needs to happen when the property purchase occurs.

  • Pros: The surviving partner becomes the sole owner automatically, bypassing “forced heirship” for that specific property. The children cannot claim their share until both partners have passed away.
  • Cons: It can be difficult to undo if the couple splits up, as both must agree to cancel it. There may also be higher tax implications if the property value is high and the couple is not married or in a PACS (official civil partnership)
  • Recommended for unmarried couples or those with children from previous marriages who want to ensure the survivor stays in the immediate family

3. SCI (Société Civile Immobilière) (Limited Liability Company)

You set up a French LLC to buy the property. The couple (and their children) then owns shares in the company rather than the real estate itself.

  • Pros: Offers the most flexibility for succession planning. Shares can be transferred more easily than real estate, and they can help non-residents manage French inheritance taxes.
  • Cons: Higher setup costs and ongoing administrative requirements (annual accounts). The shares must also be declared to the IRS every year.
  • Recommended for high-value properties or complex family situations where you want to avoid certain French succession rules.

Comparison of Couple Status & Protections

Status: Married

  • Inheritance Tax: Exempt (0%)
  • Automatic Rights: Strongest; can use a Communauté Universelle contract to protect the survivor

Status: PACS (Civil Union)

  • Inheritance Tax: Exempt (0%)
  • Automatic Rights: No automatic inheritance. You must write a French will, or the partner gets nothing

Status: Cohabiting

  • Inheritance Tax: 60% (yes, you read that correctly!)
  • Automatic Rights: None; the surviving partner is treated as a “stranger” for tax purposes

Inheritance Tax on Worldwide Income

When a French tax resident dies, their entire worldwide assets will be taxed by the French authorities. French inheritance tax rates and allowances depend entirely on the familial relationship between the deceased and the beneficiary.

  • Spouse/Civil partner: Fully exempt from inheritance taxes
  • Children/parents: biological, adopted: €100,000 tax-free allowance; above that threshold, a sliding scale: 5% to 45% (progressive)
  • Siblings: €15,932 tax-free allowance; above that threshold, a sliding scale: 35% to 45%
  • Nephews/Nieces: €7,967 tax-free allowance; above that threshold, 55%
  • Unrelated/Friends: €1,594 tax-free allowance; above that threshold, 60%. This category includes unofficial life partners, as well as stepchildren you may have raised, but are not officially your children

More notes of caution:

  • It is important to verify that adopted children will indeed inherit just like biological children; it isn’t always the case, especially if they were adopted as adults.
  • If you have a joint bank account, the wording in the title can determine what happens upon the death of one account holder. It is best to verify this when you open an account.
  • In France you cannot “disinherit” your children. If a couple jointly owns a property and one partner dies, the children of the deceased partner have automatic ownership rights on a portion of the assets and property of the deceased. This cannot be overridden by a legal contract.

The above is not a comprehensive account of all the details. However, at least this article can help retirees avoid some pitfalls and be prepared.

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US Taxes for Americans Living in France

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Note from the editor: One of our most asked questions here at TAIP is: how do I file my taxes as an American expat in France? Do you have any accountant recommendations? As such, I’ve made it a goal to come into contact with some reputable CPAs. Universal Tax Professionals specializes in US taxes for Americans living abroad. Josh Katz, CPA and Founder of UTP shared this very helpful overview of everything you need to know about filing as an expat in France, as well as ways UTP may be able to help. — MS

For Americans living in France, the issue of taxes can seem complex, as they need to address both French and US tax obligations. While living abroad provides many opportunities, it does not absolve US citizens from filing and paying US taxes. The US operates on a citizenship-based taxation system, meaning Americans must file a tax return annually, no matter where they live. 

Who Needs to File US Taxes?

All US citizens and Green Card holders living abroad must file a US tax return if they meet the below income thresholds:

  • $13,850 for single filers
  • $27,700 for married filing jointly
  • $5 for married filing separately
  • $20,800 for head of household
  • $400 for self-employed

This means if your worldwide income, including earnings from French sources, exceeds these amounts, you must file a US tax return, regardless of where you live.

Foreign Earned Income Exclusion (FEIE)

To reduce the burden of double taxation, the Foreign Earned Income Exclusion (FEIE) allows Americans living abroad to exclude a certain amount of their foreign-earned income from US taxation. For the 2023 tax year, this amount is $120,000. To qualify for this exclusion, you must pass either the Bona Fide Residence Test or the Physical Presence Test.

  • Bona Fide Residence Test: You must reside in a foreign country for an uninterrupted period that includes a full tax year
  • Physical Presence Test: You need to be physically present in a foreign country for at least 330 full days in any consecutive 12-month period

Foreign Tax Credit (FTC)

In addition to FEIE, US expats in France can also claim the Foreign Tax Credit (FTC). This credit allows you to offset taxes paid to the French government against your US tax liability. If you pay taxes in France, you may be able to avoid double taxation on the same income by claiming the FTC.

For instance, if you’re employed in France and pay French income taxes, the amount of tax you pay to the French government can be credited against the US taxes you owe. This credit applies to income, dividend, and interest taxes but not to social security contributions.

Reporting Foreign Bank Accounts: FBAR

If you have a foreign bank account, including accounts held at French banks, you may need to report this to the US government. The Foreign Bank Account Report (FBAR) is required if the total value of all your foreign financial accounts exceeds $10,000 at any point during the year. The FBAR must be filed electronically with the Financial Crimes Enforcement Network (FinCEN) by April 15 each year, though an automatic extension to October 15 is available.

FATCA Reporting

The Foreign Account Tax Compliance Act (FATCA) requires US expats to report their foreign assets if they exceed certain thresholds. For US taxpayers living abroad, the threshold is $200,000 for single filers and $400,000 for joint filers at the end of the year. This includes bank accounts, investment accounts, and other financial assets held in France.

FATCA reporting is done through Form 8938, which must be included with your US tax return.

Self-Employment Taxes

If you’re self-employed in France, you must pay US self-employment taxes, which cover Social Security and Medicare. The US self-employment tax rate is 15.3% of your net income. However, if you’re covered by the French social security system, the US-France Totalization Agreement can help you avoid paying social security taxes in both countries.

Under this agreement, if you contribute to the French social security system, you won’t be required to pay US self-employment taxes. However, you’ll still need to file your US tax return and report your income.

Double Taxation and the US-France Tax Treaty

The US-France Tax Treaty helps avoid double taxation by providing rules for which country has the right to tax specific types of income. For example, the treaty outlines how pensions, investment income, and wages should be taxed to prevent them from being taxed by both the US and France.

Understanding how the treaty applies to your situation is crucial, as it can affect your tax liability in both countries. 

Deadlines and Extensions

For Americans living abroad, the US tax filing deadline is June 15 — an automatic two-month extension beyond the standard April 15 deadline. However, if you owe any taxes, interest will still accrue from the April deadline. If you need more time, you can request an extension until October 15, but you must submit Form 4868 to do so.

Streamlined Filing Compliance Procedures

If you’ve fallen behind on your US tax filings while living in France, you may be able to catch up without facing penalties through the Streamlined Filing Compliance Procedures. This program is designed for expats who have not filed their tax returns due to non-willful neglect. To use the program, you must file three years of back taxes and six years of FBARs, along with a statement explaining your non-compliance.

How a Tax Professional Can Help with Your US Taxes

Handling US taxes while living in France can be challenging, especially with the complexity of filing requirements, credits, and exclusions available to expats. Working with a tax professional means you won’t have to worry about missing deadlines, filling out complicated forms, or determining whether you qualify for certain credits. They can help simplify the process and reduce the risk of penalties or overpayment.

Universal Tax Professionals has been offering tailored tax services to American expats in France for over ten years. Our experienced team specializes in US expat tax preparation, ensuring that you comply with US tax laws and maximize the credits and exclusions available to you. Whether you need help filing back taxes, claiming the right deductions, or understanding complex reporting requirements, UTP provides personalized support. Reach out to schedule a consultation today and let our team take the stress out of your US tax filing while living in France.

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