In France a gift is called a 'donation', and French gift tax called the 'droits de donation'. These are calculated by reference to fixed scales imposed by law, taking into account the value of the property. Of course, most of us have felt the same way. For example, if a person makes a gift now to the maximum level of the tax-free allowance, they would be able to make repeat that gift in fifteen years and the beneficiaries would be entitled to their allowance again. This means that if the donor has any intention of using the property for anything more than a week or two each year, then extra care must be taken, and specific advice sought on how to avoid problems.If you have an enquiry or you would like to find out more about our services, why not contact us?The property is based in France and is therefore inevitably subject to French taxation rules.
Yet we should also bear in mind that the gift of the French property by the donor can give rise to a liability to capital gains tax in the UK. Expenses incurred during the ownership of the property – such as the cost of works, and professional fees – are also deducted from the value at the time of the gift. It can even result in the whole value of the property being included in the donor’s estate on death: effectively defeating the object of the gift in the first place.Let us presume that a person living in the UK wishes to leave their house in France to their children; they understand that this could be good for tax planning, but are not fully sure why. Far better to seek analysis from specialist solicitors with knowledge of both legal and taxation procedures as a first step in the process.Sensible wealth protection planning, for those who can afford it, will often include an intention by people to gift a property down to their children.So far we have looked at the implications of French gift and inheritance tax, as well as UK inheritance tax. We have made it easier to deliver gifts to France through Giftsnideas.com. Gifts and Inheritance Laws in France. Therefore the gift in France will result in the donor’s estate having been reduced for the purposes of UK inheritance tax. If the whole of the property is transferred, then it will not be necessary to anticipate a further gift in any event.In order to decide whether this outlay is worthwhile, the family should understand fully the implications of, and consequences arising from, a gift of French property, since structuring the gift in an unsuitable format can expose the donor and their family to substantial costs, both in France and the UK. i. In addition, methods of completing a gift that may be very commonplace in France – and highly beneficial for French tax saving purposes – can be equally disadvantageous for UK tax purposes.It is important to bear in mind that as the donor is living in the UK then their worldwide estate is going to be subject to UK inheritance tax as well (there are some exemptions to this, but space does not allow them to be considered here – again this is a point upon which specialist advice should be sought). So if the French house is gifted to the donor’s children, UK CGT is applied by taking the original purchase price from the value at the time of the gift. The result constitutes the profit made, and this is then subjected to tax in the UK.Another proviso to be observed before the property is to be treated as outside of the donor’s estate on death is that they must not have given the property to the children while retaining any ability to occupy or control it. First, whilst there are gift tax allowances, French inheritance law places a limit on the amount of your property that you can freely dispose of by way of gifts. While we have seen that problems can clearly arise in the absence of careful planning, it is nevertheless the case that substantial savings can indeed be made. For example, if a person makes a gift now to the maximum level of the tax-free allowance, they would be able to make repeat that gift in fifteen years and the beneficiaries would be entitled to their allowance again. French tax rules impose a potential gift tax charge at the point the gift is made. UK CGT applies when a person disposes of an asset (excluding their main residence). It is highly advantageous for French tax planning, yet similarly disadvantageous for UK tax. If the donor can exercise control, then HMRC would treat the French property as continuing to be included in the donor’s estate for the purposes of calculation of UK inheritance tax.
Let us consider some of the points that they will need to bear in mind when deciding whether to proceed with the gift.One way that control can be retained by the donor can actually be achieved inadvertently through one method of completing the gift that could well be the default option that a French Notaire may choose. Quite simply, that would entirely defeat the object of the gift. However, unlike the 15-year requirement in France, the period in the UK is seven years. Gifting in France can be carried out on a fifteen-year cycle. One of the most obvious assets to pass on to one’s children would be a second home. One does also need to bear in mind the Notaire’s fees for completing a deed of gift. If you decide to bring flowers, remember that chrysanthemums are for funerals, red roses for lovers.