12. Gift Tax in France

1. 12.1. Gift Tax in France Introduction
   12.2. Gift Tax Allowances
   12.3. Rates of French Gift Tax
   12.4. Gifts of Real Estate in France
   12.5. Gifts & French Inheritance Laws
   12.6. Procedures for Making Gifts

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12.4. Gift of Real Estate in France

Where the gift takes the form of the transfer of interest in real estate in France then the French gift tax allowances depend on the type of interest granted in the property.

At the outset we need to define and distinguish three types of interest in property. This is tricky, but you need to grasp it if you are considering the gift of real property.

In plain terms we can say that the first type of interest is to live in the property; a second type of interest is to be able to rent it, and the third type of interest is to be able to sell it.

Using this basic division of interests, it is possible to distinguish three types of legal interest that can be created in property.

i. Nue-propriété

This is the reversionary interest in property, which grants the right of the freehold to a property, without the right to use it. A nue-propriétaire can sell, but a usufruitier has the right to remain in occupation.

ii. Usufruit

Accordingly, a usufruit is the right to use property and to enjoy the revenues from it (ie, use fruit), without the right to destroy it or to sell it.

The right can exist for a definite period of time or for the life of the user. Where it is for the life of the user it is known as a property en viager.

iii. Plein Propriété

The freehold ownership and use of property, where both the nue-propriété and the usufruit become enjoined.

In the case of transfer of either the reversionary interest or the life interest, it is necessary to determine the value of the interest that is to be transferred.

This is done by way of a scale established by the tax authority based on the age of the usufruitier, as follows:


Table: Value of Interest

Age of Usufruitier	Value of Usufruit	Value of Nue Propriété
Less than 21 years	90%	10%
21 years to 30 years	80%	20%
31 years to 40 years	70%	30%
41years to 50 years	60%	40%
51 years to 60 years	50%	50%
61 years to 70 years	40%	60%
71 years to 80 years	30%	70%
81 years to 90 years	20%	80%
91+ years	10%	90%

So, for example, a person of 62 years gifts the reversionary interest in a second home to a member of their family. The donor remains usufruitier of the property to benefit from any rental income received, or to use the property themselves.

The value of the reversionary freehold interest is then a function of the value of the usufruit – in this case it is 60%. This is the figure that is then used to calculate liabilty to gifts tax.

On the death of the donor the freehold interest in the property is automatically transferred to the recipient, without the need to undertake any formalities or pay additional taxes.

In the case of a gift of the freehold of a property, it is not necessary that the whole of the freehold interest is transferred. If you do not wish to exceed the tax free limits, then you can transfer up to the maximum of these limits.

There is no capital gains tax payable on the gift of real property.

However, you need to do this with care, for if the tax authority consider that a gift has been made with the specific purpose of avoiding capital gains tax, they can ignore the gift and apply the capital gain.

Whilst these tax concessions are going to be of interest to those doing inheritance planning, it should be noted that transfers of real estate by way of gift attracts legal registration and notaire fees. Stamp duty (taxe de publicité foncière) of 1.1% (2.5% from 2012) is payable, as well as notaires fees, which are not insignificant.

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