Property Ownership Options
- Adopt a French Marriage Contract
- Enter into a French Civil Partnership
- Make a Family Inheritance Pact
- Make a Will
- Create a Trust Structure
- European Succession Law
Financial Planning Options
- Buy or Improve with a Mortgage
- Make a Gift Between Man and Wife
- Make a Gift to Children/Grandchildren
- Make a Gift to Others
- Take out Life Insurance
4.11.1. Tax Free Allowances
Although there is a gifts tax in France there are also allowances, which operate on a fifteen-year cycle, as follows:
i. Basic - Each parent can give each of their children €100,000 free of gifts tax. Accordingly, if you are a couple with two children, you can donate to each of them €200,000, free of tax. If the child is registered disabled the allowance is increased by a further €156,325 per parent. There is also an allowance of €31,865 from each grandparent to each of their grandchildren.
ii. Money - Each parent/grandparent/great-grandparent may make a monetary gift of €31,395 to each of their children/grandchildren/great-grandchildren free of tax. This separate allowance is conditional on the donor being not older than 80 years of age and the beneficiary must be over 18 years old. The gift must also be declared to the tax authority. This entitlement is over and above what may be granted to your descendants in the course of daily life.
These allowances are cumulative so that a child may receive gifts from both parents and grandparents, without one affecting the exemption limits of the other.
As the grandchildren will not normally be inheritors of the estate of their grandparents (unless you make specific provision), then the sums given to them are not reintegrated into the inheritance tax calculation. Accordingly, in order to benefit they cannot later inherit directly, or via a Will. A very useful tax break as there is no significant inheritance tax allowance between grandparents and grandchildren.
The gift may also be made as a single payment or a series of payments over time.
One way of reducing the amount of gifts tax payable is to reduce the taxable base and for you to pay the tax.
Example: If a parent were proposing to gift a child €200,000, but instead gifted them €168,171, on which you paid €31,829 gift tax (totalling €200,000) it reduces the amount of gift tax payable by around €7,000, as your child would otherwise pay €38,195 on a gift of €200,000, leaving them with €161,805.
There is often uncertainty about the status of monetary gifts made at Xmas and at other important occasions. Such gifts are normally exempt, as we set out in our Newsletter article Xmas Presents and French Gift Tax.
4.11.2. Real Estate
It is possible to make a gift of all or part of a real estate you own, but to continue to live in the property or rent it out. This is done through the separation of legal interests in the property.
It can be very tax advantageous and is widely adopted.
You can read more about this option at Gift of Real Estate.
In addition, although less widely used, it is also possible to use a of gift real estate to obtain relief on capital gains tax on, say, the sale of a second home.
This is because capital gains tax is only payable on any sale value above the value of the property when it was transferred as a gift.
However, if this procedure is used with the express purpose of later reducing the potential capital gains tax liability the tax authority can later decide to tax the capital gain as if the gift had not been made.
The tax authority will consider the circumstances of each case to determine whether or not there has been an abus de droit.
Important factors that will be taken into consideration by the tax authority will be the date of the gift transfer, and of the date of the later sale of the property, as well as any continuing controls exercised over the property by the donor.
4.11.3. Organised Division of Assets
One particular type of gift procedure is called a donation-partage, which provides the opportunity for parents and grandparents to organise the division of their assets between their children and grandchildren to avoid later conflicts and uncertainty.
Only current assets can be gifted in this way, which means any future assets that may be created would form part of the normal inheritance process.
Accordingly, it is not unusual for beneficiaries of the donation-partage to be party to the gift procedure, in order to reduce the risk that one or more of the inheritors will later contest the process.
Indeed, if grand-parents wish to make a gift to their grand-children beyond the amount that is freely disposable (as of course their own children are protected heirs) then the consent of their children is necessary.
One of the advantages of a donation partage is that, on the death of the donor, the gift is valued at the date it was made, and not the date of the death.
Accordingly, it reduces a potential inheritance tax liability, and the risk that the beneficiary may later have to compensate other protected heirs if they have received more that they that to which they may be entitled under the inheritance laws.
It is also possible for the donor to retain life use (usufruit) of the gifts granted under a donation-partage e.g. revenue earning real estate.
You can also favour one child over another, but only up to the amount that is freely disposable under inheritance laws, unless the other beneficiaries are prepared to agree to an unequal split.
This might be appropriate, for instance, in relation to a family business, or a handicapped child. There is a specific renunciation procedure that would need to take place, through a family inheritance pact, called a pacte successorale.
Nevertheless, the valuation of gifts at the date of transmission rather than succession as occurs with a donation-partage can also lead to problems between children if there are separate assets which have been gifted whose value does not increase at the same rate.
Accordingly, you need to consider carefully whether this form of gift make sense; notaires like it as they earn substantial fees from it, but that does not mean it is the best way of inheritance planning.
If you are estranged from any of your children, which could then lead to problems concerning the disposal of real estate after your death, then you may wish to consider making a specific gift of the real estate to your other child(ren), or to bequeath it to them in a will.
Whilst those favoured by either procedure would be obliged to make monetary compensation to their brother/sister on your death (assuming it exceeded in value the proportion of your estate to which they were entitled), they would at least have control of the real estate, as they would not share ownership with them.
Alternatively, you might be able to persuade your estranged child to renonce their right to your inheritance, which you could do through a family inheritance pact.
4.11.4. Gifts Tax and Inheritance Laws
It is important to note the relationship between gifts and inheritance tax.
In the event of the death of the donor before the end of the 15-year period, then the gift will be taken into account for inheritance tax purposes.
In addition, if the value of the gift is in excess of that freely disposable under inheritance rights to protected heirs, then, on death, an adjustment will need to be made.
In practice, this is done by preparing a balance sheet of the assets of the deceased (including those previously gifted) and reducing the amount of the inheritance to anyone who may have received more than their entitlement through a gift.
Alternatively, those who may have received more than they might have been entitled under an inheritance, may keep the gift(s) received by them, on condition that they make a compensatory payment to other reserved inheritors who may have lost out.
4.11.5. Gift Procedure
If you wish to make a gift to your children or grandchildren you should contact your local notaire who will be able to process the transaction.
Unfortunately, whilst donations are a useful way of reducing liability to inheritance tax, there are fees that are payable.
Accordingly, if your sole objective in making a gift is to reduce your liability to inheritance tax, you need to weigh this liability against the fees (and taxes?) payable on making a gift.
If you are making a gift of the transfer of real estate, then notaire fees (and land registration taxes (droits de mutation)) are payable, which can run into several thousand euros.
In the case of cash the fees are likely to be under 1% of the value of the gift. Stamp duty (taxe de publicité foncière) of 0.6% is also payable on the transfer of real estate.
If the value of the real estate exceeds the gift allowance, then gift tax will also be payable.
We recommend you read more in our pages at French Gift Tax.
Next: Gifts to Others
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