What gift tax is liable on property in France for UK residents?
Antonia Ridley-Hughes of Ashtons Legal answers a reader query
There are three taxes to think about when gifting property
Day Of Victory Studio / Shutterstock
Reader Question: We are resident in the UK. We would like to gift an interest in our holiday home to our children while retaining a right to live there. Would the gift be taxable in France or the UK, and at what point is any tax due?
There are three main taxes to consider when a UK resident looks to gift an interest in a French property; French gift tax, UK inheritance tax (IHT) and UK Capital Gains Tax (CGT).
Gifts of French property are subject to French gift tax, which is applied at the time of the gift.
The tax-free allowances and tax rates are dictated by the relationship between the donor and recipient. Children benefit from a tax-free allowance of €100,000, and any surplus is taxed on a sliding scale between 5% and 45%.
These allowances only renew every 15 years.
Read more: Is tax due on a gift in a UK will to French family?
What are the rules for UK residents?
As UK residents, if you die within seven years of making the gift, it will be brought back into your estate for UK IHT at the time of your death.
UK IHT is charged at 40% on the value exceeding the nil-rate bands available (the maximum tax-free allowance that is available for a married couple is currently £1million). If you survive seven years from the date of the gift, it is excluded from your estate for UK IHT purposes, provided certain criteria are respected.
Finally, as the French property is not a main residence, there might be a potential UK CGT liability at the time of the gift.
CGT is due on any “gain” – the difference between the original purchase value and the value of the property at the time of the gift.
Alongside a personal allowance, professional fees and improvement works can be deducted from the value of the gain to minimise liability. Thereafter the rate of CGT is decided by reference to your income tax rate (18% for basic and 24% for higher rate).
Read more: Navigating inheritance tax as a Briton in France
While it is possible to make a gift of the bare ownership (and retain a right to use the property) this could have a negative effect on your estate’s liability to UK IHT.
Where a donor retains any use or control over an asset, its total value is included in their estate for UK IHT.
For this reason, we would advise that any gift be absolute.
Even in this case, if you continue to use the property you should pay market rent to your children.
Otherwise, it might be regarded as a gift with reservation of benefit, meaning (again) its total value would be included in UK IHT.
Read more: What are the rules on gifting a property in France?
