The gift of money may sometimes be the best present to give nearest and dearest at Christmas, but at what point does it need to be declared to the tax authority?*
As a general rule, it is highly unlikely that the French taxman is going to take too much interest in the money you may give or receive at Christmas.
Not only are there allowances that apply before liability to gift tax kicks in, but the tax authority is not ordinarily informed of even large transfers of money between family members. Only if a transfer was considered 'unusual' and 'suspicious' is there a legal obligation on banks to report it.
Although only stated in general terms, the civil code also grants an exemption from tax for customary gifts, called présent d’usage, stating: ‘The character of a customary gift is assessed at the date it is granted and taking into account the assets of the donor.’
In other words, the amount that is considered exempt will not be the same from one taxpayer to another.
Thus, a gift of €10,000 could be considered a taxable gift in a household having a modest income, whilst it could be considered a customary gift in a wealthier household.
To qualify as a présent d’usage two conditions must apply:
- There must be a practice of making gifts on certain occasions (engagement, birthdays, anniversaries, celebrations, births...), and
- The value of the present must not be out of proportion to the donor's resources, their wealth and annual income.
As a broad rule of thumb, the courts consider that the value of the customary gift may not exceed, on average, 2.5% of the donor's annual income.
Most courts generally only consider the wealth of the donor, when the general rule is that customary gifts should not exceed 3% to 4% of their capital.
Only if you ever get into the habit of making large gifts, would you run the risk of having these sums considered to be within the scope of gift tax.
This would normally only take place as part of a tax investigation, but more often than not it arises during an inheritance, when heirs may consider that too much money was given to another family member.
When gifts are made outside of special occasions, and when it is more a question of passing on part of your assets to your loved ones, then the requirement to make a declaration is greater.
The guidance note from the tax office also states that the gift should be formally declared within a month of the donor advising them! Thus, it states: 'les dons manuels doivent être déclarés dans le délai d’un mois qui suit la date à laquelle le donataire a révélé le don à l’administration.'
Even if you consider you may be liable, and you decide to declare the gift, this would not by itself mean that you would pay gift tax due to the allowances exist.
The general gift tax allowances that apply are as follows, depending on the family relationship:
- €80,724 to a spouse or civil partner;
- €100,000 per child/per parent;
- €31,865 per grandchild/per grandparent;
- €5,310 per great-grandchild;
- €15,932 for each brother or sister;
- €7,967 for a nephew or niece.
A 15-year rule applies on these allowances, so that if they are exceeded within a 15-year period then they become liable to gift tax. Within 15 years, the gift is also taken into consideration for the purposes of inheritance tax on death of the donor.
In addition, there is a specific exemption for family donation of cash (dons familiaux de sommes d'argent) of €31,865 if the beneficiary is a child, grandchild, great-grandchild, or, in the absence of a descendant, even nephew or niece.
This exemption is valid for a period of 15 years; a grandparent can therefore give, in several instalments over 15 years, up to €31,865 to each of their grandchildren. However, the beneficiary must be of legal age and the donor must be under 80 years of age.
Since July 2020 until June 2021 the gift of money to children or grandchildren of up to €100,000 (per donor) is exempt from gift tax, but only provided the money is used either to construct their main home, to undertake energy conservation in their property, or to subscribe capital in a small company.
We have more comprehensive information in our guide below.
*Updated Dec 2020