Controlling inheritance payments: An underappreciated method to distribute assets without resorting to immovable property sales
Inheriting property in France may come with an unwelcome burden: significant inheritance taxes. Despite being abolished in 12 Organisation for Economic Co-operation and Development (OECD) countries, the tax accounts for a substantial portion of France's gross domestic product, according to a 2024 Court of Auditors report. This tax places a financial strain on countless families, compelling heirs to sell property hastily and often at a discount.
One lesser-known strategy for managing this tax is utilizing mortgages. Despite being primarily known for enabling homeownership, mortgages can play a role in managing inherited properties. By taking out a mortgage on an inherited property, heirs can cover some of the inheritance tax costs while keeping the property.
Two sisters inherited an apartment from their parents and, lacking the means to pay the inheritance tax, faced the prospect of selling the property. Rather than let go of their investment, they approached their usual banks for a loan. However, unsurprisingly, traditional banks are wary of inheritance tax debt. A mortgage broker, like Bougardier firm, suggested a mortgage loan secured by the inherited apartment, with monthly repayments financed through the property's rental income.
Although mortgages can be helpful, they are typically reserved for properties valued at €400,000 or more. This mortgage option also allows for long-term borrowing, often over 15 years. Foreign or specialized banks provide these loans, lending amounts representing 50% to 60% of the property's value.
In a broader financial plan, there are other strategies to consider when inheriting property. Proper estate planning can minimize inheritance tax through techniques like transferring assets more than 15 years before death or taking advantage of tax allowances. For high-value properties, the Impôt sur la Fortune Immobilière (IFI) may present strategies to reduce the property's value or emphasize other assets, such as loans.
By utilizing mortgages and other strategies, heirs can potentially avoid being forced to sell inherited properties at discounted prices and preserve their financial future.
- When faced with inheriting property and being unable to pay the associated tax, as in the sisters' case, consider seeking mortgage loans, such as those proposed by firms like Bougardier, which can help cover costs and keep the property.
- A comprehensive personal-finance plan for dealing with inherited real-estate will involve exploring various strategies, including taking out mortgages and proper estate planning to minimize inheritance taxes, utilizing techniques like transferring assets over a longer period or utilizing tax allowances, and investigating specific tax implications like the Impôt sur la Fortune Immobilière (IFI).
