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We talk to Paul Flintham, an International Financial Advisor at Beacon Global Wealth Management, about French Gift Tax.
Gifts are made while you are still living. The Donor makes the gift, and the Donee receives it. The Donee is also responsible for paying any tax that is due (droits de donation).
In the UK, there is a 7-year survival period on gifts (with no limit). The tax starts at 40% on day one, then reduces each year to 0% after 7 years. If the donor survives for 7 years after making the gift, it doesn’t form part of their Estate.
However, gifts made in France are treated differently.
In terms of residency, a liability to gift tax may arise depending on the tax resident status of the donor and donee, the nature of the gift, and its location:
If you are a French tax resident, the allowances depend on your relationship with and to whom you are gifting. The gift-free allowances vary and are only for family members. The donor must be under 80 and the donee over 18 for the allowances to apply.
A gift made every 15 years is free of gift tax, provided it does not exceed the exemption limits. However, up to 15 years, the gift may later become taxable on the death of the donor.
The exemption limits for 2022 are as follows:
In addition, it is possible to make family gifts in cash (dons familiaux de sommes d’argent) of up to €31,865 to each child, grandchild, or great-grandchild from each ascendant, or, in the absence of these descendants, to a niece or nephew, free of gift tax.
Each child is entitled to receive gifts from each of their ascendants—parents, grandparents, great-grandparents. These allowances are cumulative, meaning a child can receive gifts from both parents and grandparents without one affecting the exemption limits of the other.
For example, parents aged 70 years who gift their two children a sum of €163,730 each can use the family cash gift allowance, in addition to the general allowance, granting full exemption. In addition, they can also receive the family gifts allowance from their grandparents/great-grandparents.
Even though you can make a gift free of tax every 15 years, if you die before the expiry of the 15-year period, the gift is added to the total value of your estate for the calculation of inheritance tax. This process is called the ‘rapport fiscal’.
The 15-year period must expire to be clear of any form of taxation. Nevertheless, provided the 15 years has expired, the allowances are cumulative with inheritance tax allowances.
The child allowances for inheritance tax are the same as those for gift tax. Accordingly, each child benefits from an inheritance tax allowance of €100,000 on the death of one of the parents, in addition to any expired sums granted by way of gift.
So, a gift to a child of €100,000 can be added to an inheritance tax allowance of the same amount.
If you are gifting real estate, the situation can be simplified by gifting your children the ‘reversionary interest’ in the property while you retain the ‘life use’ of the property.
If the gifts exceed the exemption limits, the following rates of tax apply:
This communication is for informational purposes only, based on our understanding of current legislation and practices, which are subject to change. It is not intended to constitute, and should not be construed as, investment advice, investment recommendations, or investment research. You should seek advice from a professional adviser before embarking on any financial planning activity. While every effort has been made to ensure the information in this communication is correct, we are not responsible for any errors or omissions.
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