What is a French Gift Tax (Droits de Donation)?

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 Doner makes the gift, the Donee receives the Gift.

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 you have survived as the donor for 7 years after the gift, it doesn’t form part of your Estate.

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, the tax resident status of the donee, the nature of the gift and its location.

• If the donor is tax resident in France liability arises on all worldwide assets transferred over and above the allowances available.
• If the donor is non-resident, liability arises on all worldwide assets transferred to the donee over the allowances available if the donee has been a tax resident of France for at least six out of the last ten years.
• If both the donor and donee are non-resident, liability arises only on the gift of real estate in France.

If you are a French tax resident, it depends on your relationship with and to whom you are gifting, the gift free allowances vary and are only for family members. The donor has to be under 80 and the donee over 18 for the allowances to apply.

A gift made every 15 years is free of gifts 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 in 2022 are as follows:

Spouses/Partners – €80,724 between spouses, PACS and those in civil partnership.
Children – €100,000 from each parent to each child (or child to parent).
Grandchildren – €31,865 from each grandparent to each of their grandchildren.
Brother/Sisters – €15,932 to brothers and sisters.
Nieces/Nephews – €7,967 to nieces and nephews.

In addition to these allowances, it is also 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 gifts tax.

Therefore, each child has an entitlement from each of their ascendants – parents, grandparents, great-grandparents.

These allowances are cumulative so that, for instance, a child may receive gifts from both parents and grandparents, without one affecting the exemption limits of the other.

Thus, parents aged 70 years who gift to their two children a sum of €163,730 each, can make use of 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.

Survivorship Period

Even though you can make a gift free of tax every 15 years, if you die before the expiry of the 15-year period then 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 happen to be 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 which may have been 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 then the situation can be made easier by gifting to your children the ‘reversionary interest’ in the property, whilst you retain the ‘life use’ of the property.

If the gifts made are above these exemption limits, then the following rates of tax apply:

 

TAXABLE AMOUNT	RATE OF TAX
Up to €8,072	5 %
€8,072 to €12,109	10 %
€12,109 to €15,392	15%
€15,932 to €552,324	20 %