When living in France, especially if you are feeling generous, it is helpful to understand the implications of gift tax (droits de donation).
In France, a gift (donation) includes significant sums of money or transfers of assets, such as real estate.
This tax levied might affect the size of your gift.
Who must pay French gift tax and what are the rates?
If you are a French resident, you are liable for gift tax on your worldwide assets.
Typically, the recipient pays the tax, not the donor.
However, if the recipient is outside France, the donor must handle the paperwork and ensure the tax is paid.
Any valuable transfer, be it money, property, or shares, is assessable.
Where applicable, the rates depend on the relationship between the donor and recipient and the value of the gift:
- Parents to children: 5% for gifts under €8,072, up to 45% for gifts over €1,805,677
- Spouses/Pacs partners: Similar to parent-child
- Siblings: 35% up to €24,430, then 45%
- Other family members: 55%
- Non-family members: 60%.
Allowances and exemptions
There are exemptions for ‘reasonable’ gifts, such as birthday and wedding presents and for subsistence support.
Read more: Is a second home subject to gift tax in France?
Every 15 years, you can gift up to the exemption limit without incurring tax.
Currently, the limits are:
- Parents to children: €100,000 per parent per child
- Grandparents to grandchildren: €31,865 per grandparent per grandchild
- Spouses/Pacs partners: €80,724
- Siblings: €15,932
- Other family members: €7,967
- Non-family members: €1,594
There is a further allowance for a family donation (dons familiaux) for children, grandchildren and great-grandchildren or for nephews and nieces in the absence of descendants.
This family allowance is restricted to sums of money, limited to €31,865.
Such gifts are subject to varied restrictions, so they must be checked carefully before proceeding, such as the donor being below the age of 80 and the beneficiary over 18.
As you can see, gift tax is not often significant, especially between close family members, and there are frequently practical ways of avoiding it altogether.
For non-relatives, however, such gifts require some very serious planning – and this includes unmarried couples.
International considerations
While France has gift tax treaties with some countries, it is important to note that these treaties can vary widely.
Notably, France has a comprehensive estate and gift tax treaty with the United States, which helps prevent double taxation and provides for marital deductions and unified credits under certain conditions.
Read more: Do French gift laws limit my US annual allowance?
However, despite having an income tax treaty and a succession treaty with France, the UK does not have a treaty specifically covering lifetime gifts.
This means that gifts made between residents of France and the UK could potentially be assessed in both countries, though, in our experience, this does not happen, with the UK giving a credit for tax paid in France.
Read more: Is tax due on a gift in a UK will to French family?
Declaring gifts in France
All gifts must be declared to French tax authorities, regardless of tax status.
This involves completing Cerfa form 2735 SD, titled Déclaration de dons manuels et de sommes d’argent.
This declaration is crucial to avoid legal issues and ensure transparency.
Gifts must be declared within one month of the transfer.
Failing to declare can lead to penalties, so timely reporting is essential.
The declaration can be done online through the official French tax website or by going into the local tax office.
It is vital to keep detailed records of the gift, including its date, value and nature, and the relationship between the donor and recipient.
Practical steps for declaration
First, collect all necessary documentation related to the gift, including bank statements, property valuations and any relevant contracts.
Next, complete Cerfa form 2735 SD with accurate details of the gift and submit it online or in person at the tax office.
Retain copies of all submitted documents and any correspondence with tax authorities for future reference.
Penalties for non-compliance
Failure to declare gifts or pay the appropriate tax can result in severe penalties, including fines and increased scrutiny from tax authorities.
The penalties can range from 0.2% per month of delay to a 40% surcharge in cases of deliberate non-declaration.
Engaging a French accountant or tax lawyer can help navigate these complexities and ensure compliance.
Special cases
There are cases where the rules might differ slightly, such as gifts made as part of an inheritance.
In these cases, it is advisable to consult a tax professional to ensure all legal requirements are met and to potentially reduce the tax burden.
Gift tax planning strategies
To minimise the tax impact, consider using the 15-year exemption periods to spread large gifts over time.
You could also make full use of the available exemptions by gifting within the limits.
It helps, too, to regularly consult a tax specialist for tailored advice and updates on law changes.
Find out more at kentingtons.com.
