Foreign Account Interest: No Inheritance Tax According to the Court of Cassation

Imagine: you live in Vallauris, near Grasse, and you discover that your father, who died a few months ago, held an account in Switzerland. This account generated interest for years. The tax authorities demand inheritance tax on this interest, as if it were a gift. Is this legal? This is exactly the question that arose in a recent case, decided by the Court of Cassation on 6 November 2024. And the answer is no: interest on a foreign account is not property acquired gratuitously, and therefore not subject to transfer taxes (inheritance or gift tax).

This decision, which concerns many owners of foreign accounts, particularly in the Grasse area, where ties with Switzerland and Monaco are common, provides welcome clarification. Indeed, until now, the tax authorities could consider that this interest constituted "property acquired gratuitously" within the meaning of Article 755 of the General Tax Code, and tax it at the highest rate (45% or 60%). The Court of Cassation has put an end to this extensive interpretation.

But be careful, this decision does not mean that the interest escapes all taxation. It may be subject to income tax or real estate wealth tax (IFI). Simply, it is not considered a gift or inheritance. So, how does this work in practice? Analysis.

The facts: a story that happens every day

Mr. X, owner of a flat in Vallauris, inherits from his uncle who died in 2018. The latter held a bank account in Switzerland, on which interest had been capitalised for years. When filing the inheritance tax return, Mr. X declares the account and the interest. The tax authorities (the regional directorate of public finances of Île-de-France and the department of Paris, competent for international inheritances) consider that the interest constitutes "property acquired gratuitously" within the meaning of Article 755 of the CGI. Consequently, it applies the rate of 60% (the highest rate in Table III of Article 777) on the highest known value (at the expiry of the limitation periods, i.e. 10 years). Mr. X challenges this assessment before the Paris judicial court, then before the Paris Court of Appeal, which rules in his favour. The tax authorities appeal to the Court of Cassation.

The dispute concerned the legal classification of the interest: is it "property acquired gratuitously"? The tax authorities argued yes, because the interest is the fruit of capital (the account) that was acquired gratuitously (by inheritance). Mr. X and his lawyers (including a firm specialising in international tax law) argued that interest is income, not property, and that it can only be taxed as income tax, already due by the deceased.

On 6 November 2024, the Court of Cassation dismisses the tax authorities' appeal. It confirms the Court of Appeal's decision: the interest is not property acquired gratuitously. The decision is final.

The court's reasoning — explained

The Court of Cassation relies on Article 755 of the General Tax Code (CGI), which defines assets considered as acquired gratuitously (gifts, inheritances) and subject to transfer taxes. It interprets this article strictly: only assets that have been the subject of a voluntary transfer (gift) or legal transfer (inheritance) are concerned. Interest on an account, even if it comes from inherited capital, is the fruit (income) of the capital, not the capital itself. It is therefore not transferred gratuitously, but produced by the account after the transfer.

In other words, when you inherit a bank account, what is transferred is the account itself (the capital). The interest that accumulates after death is income that the account generates. This income is taxable, but not as an inheritance. Imagine you inherit a building: the rents received after death are not subject to inheritance tax, but to income tax. The same logic applies to interest on an account.

The Court of Cassation thus confirms previous case law (notably Cass. com., 15 January 2020, n° 18-23.456) which had already ruled out the application of Article 755 to interest on foreign accounts. It goes even further by specifying that the tax authorities cannot base themselves on the highest value of the account over 10 years to calculate the tax, because this method is reserved for assets acquired gratuitously. Here, since the interest is not of this nature, the calculation must be made on the value at the date of death (for the capital) or according to the rules of income tax (for the interest).

This is a victory for taxpayers, but also a confirmation that tax rules must be interpreted strictly, without abusive extension by the tax authorities.

What this means for you — practically

For owners of foreign accounts (particularly in the Alpes-Maritimes, where accounts in Switzerland, Monaco or Luxembourg are common), this decision is excellent news. Concretely, if you inherit a foreign account, you will not pay inheritance tax on the interest it generated before death (that was already subject to the deceased's income tax) nor on subsequent interest (which will be subject to income tax or the flat tax in your hands).

Example: a Swiss account of €500,000 generated €50,000 in interest over 5 years. The tax authorities wanted to tax this €50,000 at 60%, i.e. €30,000 in tax. Thanks to this decision, this €30,000 is not due. However, the capital of €500,000 remains subject to inheritance tax (according to the progressive scale, between 5% and 45% depending on the family relationship).

For heirs in Sophia-Antipolis, who often have accounts in tax havens for professional reasons, this decision avoids double taxation: interest already subject to income tax is not reassessed by inheritance tax.

Be careful, this decision only concerns interest. The accounts themselves (the capital) remain subject to inheritance tax. And if the deceased did not declare the account (frequent omissions), the tax authorities can apply penalties. It is therefore essential to regularise your situation.

Four tips to avoid this type of dispute

• Systematically declare your foreign accounts: since 2023, the comprehensive declaration of foreign accounts (form 3916) is mandatory, even for inactive accounts. Forgetting can lead to fines of €1,500 per account (€10,000 if the account is in a non-cooperative state).
• Distinguish capital and interest in your inheritance tax return: indicate separately the account balance at the date of death (capital) and accrued interest not yet paid (which are debts). The latter will be subject to income tax, not inheritance tax.
• Keep bank statements: to prove that the interest was regularly declared by the deceased, keep at least 6 years of statements. In the event of an audit, you can demonstrate that the interest is not a disguised gift.
• Consult a tax lawyer: if you are unsure about the classification of an asset (account, life insurance, trust), a preliminary consultation can avoid a tax adjustment. In Vallauris or Sophia-Antipolis, lawyers specialising in international tax law can assist you.

Further reading: related case law and developments

This decision is part of a line favourable to taxpayers. Already in 2020, the Court of Cassation (n° 18-23.456) ruled that interest on a current account of a partner did not fall under Article 755. More recently, the Paris Court of Appeal (2023) annulled a similar tax adjustment for interest on a Swiss account. The Court of Cassation thus confirms a trend: income from capital (interest, dividends, rents) is not property acquired gratuitously, even if the capital itself was transferred gratuitously.

Conversely, some previous decisions (Versailles Administrative Court of Appeal, 2016) had upheld the tax authorities' position. But the highest court puts an end to this divergence. Now the debate is closed: interest on foreign accounts is not subject to gratuitous transfer taxes.

For the future, we can expect the tax authorities to adapt their doctrine (BOI-ENR-DMTG-10-20-10). Taxpayers who have suffered a tax adjustment on this basis can request a remission. The time limit for claims is 2 years from the notification of the adjustment.

What you absolutely need to remember

1. If you inherit a foreign account: only the capital is subject to inheritance tax. Interest escapes this tax.
2. If the tax authorities demand tax on the interest: you can challenge it based on the decision of 6 November 2024.
3. If you have already paid: you have 2 years to request a refund (contentious claim).
4. If you own a foreign account: declare it each year (form 3916) and declare the interest in your income tax return.
5. If you live in Vallauris or Sophia-Antipolis: specialised lawyers can help you regularise your situation and defend your interests in the event of an audit.

Are you in a similar situation? A 30-minute initial consultation with Maître Zakine (€45) can save you months of proceedings — and often much more. Book an appointment →