Madrid treaty of 8 January 1963 · inheritance tax

France-Spain estate tax: each asset is taxed in one country only

Between France and Spain, a 1963 treaty divides the assets of an estate between the two States instead of relying on a tax credit. The house in Spain is taxed only in Spain, the flat in Paris only in France, accounts and securities only in the deceased's State of residence. Lifetime gifts fall outside its scope.

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How is an estate taxed between France and Spain?

The treaty of 8 January 1963, whose inheritance tax provisions (Articles 29 to 38) and common provisions remain in force, applies to the estates of persons resident in France or Spain at the time of death. It divides the assets into two pools: real estate is taxed only in the State where it is situated, tangible movables only where they are at the time of death, business assets only in the State of the permanent establishment, and intangible assets, securities, receivables and bank accounts, only in the deceased's State of residence (Articles 30 to 34).

There is therefore no tax credit to compute: each State taxes its own pool, but may apply the rate that would result from all the assets it could tax under its domestic law (Article 36). The treaty does not apply to lifetime gifts.

France-Spain treaty of 8 January 1963, Articles 29 to 36, text published on impots.gouv.fr; BOI-INT-CVB-ESP-20 of 28 November 2024.

— In brief
Text
Treaty of 8 January 1963, Articles 1 to 7 and 29 to 45, applicable to deaths since 29 November 1963
Taxes covered
French inheritance tax; Spanish impuesto sobre sucesiones y donaciones
Method
Exclusive allocation of assets, with a progression proviso
Watch point
Spanish bank accounts: the two administrations do not classify them in the same way
— Asset by asset: who may tax

The allocation rule, article by article

  • Scope (Article 29). The treaty covers, in France, inheritance tax levied on the heirs' shares and, in Spain, inheritance tax, as well as identical or substantially similar taxes replacing them. Subject to Articles 37 and 38, it does not apply to duties on lifetime gifts.
  • Residence of the deceased (Article 3). A resident is a person liable to tax in a State by reason of domicile, residence or a similar criterion. For dual residents, the deceased is attached in turn to the permanent home, the centre of vital interests, the habitual abode and then nationality; failing that, the two administrations decide by mutual agreement.
  • Real estate (Article 30). Immovable property and its accessories are taxed only in the State where they are situated, including usufruct, but not receivables secured by a mortgage. Whether an asset is immovable is decided under the law of the State where it is situated, tax law as well as civil law according to the French authorities.
  • Business assets (Article 31). Assets invested in an enterprise are taxed only in the State where it has a permanent establishment, or in each State for the assets allocated to the establishment located there. For sociétés civiles immobilières, the treaty specifies that any building operated in accordance with their corporate purpose constitutes a permanent establishment. Excluded are securities, shares in capital companies, including civil companies taxed as capital companies, and limited partner interests in sociétés en commandite simple, which fall under Article 34.
  • Liberal professions (Article 32). Assets attached to permanent installations used for a liberal profession are taxed only in the State of those installations.
  • Tangible movables (Article 33). Furniture, linen, household items, cash, works of art and collections are taxed where they actually are at the date of death. Boats, aircraft, cars and other motor vehicles are taxed in the State where they are registered.
  • Intangible assets (Article 34). Securities and receivables are taxed only in the deceased's State of residence. French securities and receivables on a debtor domiciled in France are therefore not taxed in France in the estate of a Spanish resident. Patents, trademarks and intellectual property rights are taxed in the State where they were filed.
  • Bank accounts. For the French authorities, a bank balance is a claim on the bank, hence an intangible asset taxable in the deceased's State of residence (ministerial answer Valleix, National Assembly, 5 March 2001, No. 39460, taken up in the BOFiP). Commentators note that the Spanish authorities classify the balance of a deposit account as a tangible movable, taxable where it is located. A French resident's Spanish account may thus be claimed by both States; according to the same commentary, such situations have already been settled under the mutual agreement procedure of Article 40.
  • Debts (Article 35). Business debts are charged to the business assets, debts secured on real estate, a boat or a vehicle to that asset, other debts to the intangible assets of Article 34; any uncovered balance in a State is deducted from the other assets taxed in that State.
  • Equal treatment and charities (Articles 37 and 38). Nationals of each State enjoy in the other, for inheritance and gift duties, the same allowances for personal and family circumstances as its own nationals. Public interest bodies based in one State benefit in the other from the exemptions granted to similar bodies: a bequest to a Spanish foundation may thus qualify for the exemptions of Articles 794 and 795 of the French Tax Code.
  • Mutual agreement procedure (Article 40). A resident who considers that taxation is not in accordance with the treaty may refer the case to the competent authority of the State of residence, irrespective of domestic remedies; the text sets no time limit, but domestic filing, payment and claim deadlines keep running.
— The effective rate: a worked example

France taxes only its share, but at the rate of the whole

Article 36 allows each State to compute the tax on the assets reserved to it at the rate that would apply if all the assets taxable under its domestic law were taken into account. On the French side, these are the assets covered by Article 750 ter of the French Tax Code: all the assets of a deceased domiciled in France, or the French assets of a deceased domiciled outside France, plus foreign assets received by an heir domiciled in France for at least six of the last ten years.

The French authorities give an example (BOI-INT-CVB-ESP-20, No. 220). A Spanish resident leaves a building in France worth 500,000 euros and its furniture worth 20,000 euros, a business in Spain worth 380,000 euros, French securities worth 10,000 euros, foreign securities worth 20,000 euros and furniture and cash in Spain worth 3,000 euros. The sole heir, a child, lives in Spain. Without the treaty, France would tax 530,000 euros; after the 100,000 euro allowance, the tax would be 84,194 euros, an average rate of 15.89%. Under the treaty, France taxes only the building and its furniture, 520,000 euros, at 15.89%: 82,628 euros. The French securities, being intangible, are taxed only in Spain.

The practical consequence is twofold. An heir domiciled in France does not bring into the French tax base the accounts and securities, other than business assets, of a parent resident in Spain, which the treaty reserves to Spain: they count, where relevant, only for the rate. Conversely, the French resident who leaves a house in Spain sees France give up taxing it, but include it in calculating the rate applicable to the rest of the estate.

— The Spanish side: regions and gifts

What happens outside the treaty

  • A tax payable by the heir. In Spain, inheritance and gift tax is payable by the recipient. A non-resident heir is liable only on assets situated or rights exercisable in Spain (Law 29/1987, Article 7). The treaty overrides these domestic rules: it limits what Spain may tax in the estate of a French resident.
  • Regional rules. The autonomous communities set a large part of the reductions and rebates, and the gap between Andalusia, Catalonia, Madrid or the Valencian Community can be considerable. Since the judgment of the Court of Justice of the European Union of 3 September 2014 (Case C-127/12), Spanish law lets non-residents benefit from them: where the deceased was not resident in Spain, the heirs apply the rules of the autonomous community where the greatest value of the assets situated in Spain is located; where the deceased was resident in an autonomous community, non-resident heirs apply its rules (Additional Provision 2 of Law 29/1987). Regional scales and reductions change often and are checked at the date of death with a Spanish adviser.
  • Gifts, outside the treaty. A gift of a Spanish house by a French resident may be taxed in Spain, where the property is situated, and in France, where the donor is domiciled. France then credits the Spanish tax, up to the French tax relating to the assets situated outside France (Article 784 A of the French Tax Code). The timing of a gift versus a transfer on death is therefore decided with both regimes in mind.
— What to understand

Each asset is allocated to a single State

Most recent estate tax treaties let the State of domicile tax the whole estate and require it to deduct the tax paid elsewhere. The 1963 France-Spain treaty works differently: it allocates each asset to a single State. A French resident who leaves a house in Catalonia will not see it taxed in France; a Spanish resident who leaves a portfolio of French securities will not see it taxed in France.

This allocation is powerful, but it requires each asset to be characterised with care. A bank account, a French SCI, a Spanish company holding a villa, a boat registered in Barcelona do not follow the same rule. And the treaty covers estates only: a gift of the same house during lifetime may be taxed in both countries.

— Who is concerned

Five common situations

French residents owning property in Spain

A house on the Costa Brava or in Andalusia, a flat in Madrid: the real estate belongs to Spain alone.

French retirees living in Spain

A deceased Spanish resident with assets left in France: flat, insurance, accounts, securities.

Spanish families living in France

Family assets left in Spain, heirs living in both countries.

Holding through a company

French SCI, Spanish SL: the nature of the shares changes the taxing State.

Lifetime gifts

Outside the treaty, a gift of a Spanish property by a French resident may be taxed twice, with a limited credit.

— Frequently asked questions

What we are asked about France-Spain estates

My father, a French resident, leaves a house in Andalusia: who taxes it?

Spain alone (Article 30). France does not tax it, but may take it into account in setting the rate applicable to the other assets of the estate (Article 36). In Spain, the tax is payable by the heirs, who may apply the rules of the autonomous community where the greatest value of the Spanish assets is located, here Andalusia.

The deceased, a French resident, had a bank account in Spain: where is it taxed?

In France according to the French authorities, which see an account as a claim taxable in the deceased's State of residence (Article 34). According to commentators, the Spanish authorities would treat it as a tangible movable located in Spain. In the event of double taxation, the mutual agreement procedure of Article 40 allows the two administrations to settle the question.

My mother lived in Spain and I live in France: will I pay inheritance tax in France?

Only on what the treaty reserves to France, in particular a building in France, movables located there, a vehicle or boat registered in France, the assets of a French establishment or professional practice, a trademark or patent filed in France. Her accounts and securities not attached to a business or professional practice under Articles 31 or 32, even French ones, are taxed only in Spain, her State of residence. The French rule that taxes an heir domiciled in France for six years on assets received from abroad applies here only for the rate.

Does a Spanish villa held through a Spanish SL or a French SCI follow the real estate rule?

Not directly. Shares in a capital company, such as an SL or an SCI subject to corporate tax, are securities taxable only in the deceased's State of residence (Articles 31, paragraph 2, and 34). Shares in an SCI not subject to corporate tax may fall under Article 31, which treats the building operated in accordance with the corporate purpose as a permanent establishment: they are then taxed in the State where it is located. That characterisation depends on the articles of association, the actual operation of the building and the company's tax regime; failing that, Article 34 applies. Since the Spanish authorities may read these clauses differently, the structure should be checked before death.

Can I give my house in Spain to my children without double taxation?

The treaty does not cover gifts. If you are domiciled in France, France taxes the gift and so does Spain, where the property is situated. The Spanish tax is credited against the French tax relating to the property, up to that amount (Article 784 A of the French Tax Code). The choice between a gift and inheritance is made with the figures in hand.

What about income tax between France and Spain?

It falls under the treaty of 10 October 1995, which we cover on our page on the France-Spain tax treaty.

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© BENSAID Avocats. The information on this site does not constitute legal advice. Sources: France-Spain treaty of 8 January 1963, published on impots.gouv.fr; BOI-INT-CVB-ESP-20 of 28 November 2024; for Spanish law, Law 29/1987 on inheritance and gift tax, consolidated text in the Boletín Oficial del Estado.