Can I avoid inheritance tax for godchildren in France?

Reader question: My only living close relative is my sister, to whom I do not plan to leave anything in my will. I would like to leave everything to my godchildren, but was upset to hear they would pay 60% inheritance tax. Will it help if I now choose English inheritance law in my will, as the French government says that I have the right to do?

 The French government’s recent clarifications relating to a choice of English law in a will concern freedom to choose to whom you leave your estate without potential claims from children with ‘reserved’ rights. However, unfortunately, it has no impact on inheritance tax.

In your situation, in any case, there are no French-law ‘reserved heirs’ if you have no other close living relatives apart from your sister, meaning French law already leaves you free to bequeath your estate freely.

However, whichever law you choose, it does not shield your godchildren, who are not your blood relatives, from the high 60% tax paid by non-relatives.

As to alternatives, there is nothing stopping you, for example, spending money on your godchildren by way of hosting them, taking them with you on holidays or outings etc, however you should not hand them large lifetime gifts of money or other valuables, as this would itself incur similar liability to France’s gift tax.

The main exception is gifts on occasions such as birthdays and weddings, but these should, according to tax rules, also be proportionate to your own and their lifestyles and means.

One option worth looking into is to make them the beneficiaries of an assurance vie policy, as such money may be taken to be outside a person’s estate for inheritance tax purposes (this can depend on factors including your own age at the time when payments are made).