French tax inspectors seek €1.3m over family ‘loan’ given almost 30 years ago
Family members argue the money was actually a gift. The courts were not convinced
Loans made by the deceased can have an effect on inheritance tax to be paid
Faizal Ramli / Shutterstock
A family in France has been hit with a huge additional inheritance tax bill after officials investigated a loan made between relatives nearly 30 years before.
The loan was made from a sister to her brother in 1990, amounting to 15.5 million French francs (€2.4 million), on a 10-year, interest-free basis.
The loan was not repaid, and the sister never requested repayment, with the matter seemingly forgotten.
Following her death in 2012 however, tax authorities discovered the sum and issued her nephews (the sons of the brother who had received the money), who were her sole heirs, with an additional inheritance tax demand totalling over €1.3 million and €300,000 in late payment fees.
This has now been confirmed as correct by the Paris appeal court, after the nephews sought to contest a ruling by a lower court, the tribunal judiciaire de Paris.
Gift or loan?
This figure was reached by the tax authorities after they decided that the loan money should have been added back into the aunt’s taxable estate, as being still owed to her by her brother when she died.
Nieces and nephews can only inherit a small tax-free amount (€7,967), with amounts above this taxed at 55%.
Read more: French inheritance tax: current rules and what reforms are proposed
The nephews claimed that the sum was not a loan but was effectively a gift from sister to brother – allegedly to compensate after a previous unfair inheritance situation in the family – pointing to their aunt’s relaxed approach to collecting the money and to letters between other family members on the matter.
The nephews also highlighted that neither family member had declared the loan as such on their ‘ISF’ wealth tax declarations (abolished in 2018 and replaced with a ‘property wealth’ tax).
The nephews’ father attempted to retroactively class the loan as a gift in 2019 – after the sister’s death – but this was not accepted.
Matter may be taken further
The court remained unconvinced, however, and declared the amount to be a loan.
The aunt’s decision not to put a time-limit on the loan at her death meant it was included in the estate, and therefore liable to inheritance tax when the nephews took over the estate.
You can read the court’s full report on the website of French media Le Figaro (paywall article).
The nephews still have the choice of taking the matter to France’s highest judicial body, the Cour de cassation however.
A ruling by the Cour de cassation is final in France, and often sets the precedent for future cases.
We note that usually – though this was not explored in the full report of the case – if the loan was in fact a debt still owed to the deceased, her heirs (the nephews) would have been entitled to take legal action to claim it from their father in the five years after the inheritance share-out.
The current situation between the nephews and their father, or the financial situation of the latter, are also unclear.
