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New (temporary) additional tax-free allowance for cash gifts in France
As part of its crisis package to help the French economy recover after several months of lockdown, the French government has voted on its third amendment to the 2020 budget which introduces a temporary additional tax-free allowance for cash gifts within a family.
Under previous regulations, by combining the global gift tax allowance with the specific cash gift tax allowances (limited to cash gifts between a donor under 80 years old and a recipient over 18 years old), both renewable every 15 years, cash gifts were exempt of French gift tax if below €131,865 when gifted to a child, or €63,730 when gifted to a grandchild.
The introduction of this new measure means that tax regulations will permit a temporary additional tax-free allowance of €100,000 which will be in place until June 2021. However, with the objective of benefiting the French economy as a whole, this new allowance is limited to cash gifts made for three specific purposes:
- to invest in a new (less than 5 years old) SME where the recipient of the gift exercises their main activity,
- to carry out building work on the home of the recipient of the gift, but only if this building work is done for ecological purposes,
- to contribute towards the building cost of the recipient’s main residence.
As a condition of benefiting from this allowance, is that the one of these ways of investing the cash gift must happen within three months of its receipt.
Further, and contrary to the way tax free allowances usually work in France, this tax-free allowance will be limited to the person of the donor. This means that a donor must divide their tax-free allowance between each cash gift recipient, rather than each recipient having their own tax-free allowance. For example, where a parent with three children can gift €100,000 tax free per child under the normal tax allowances rules, this additional €100,000 must be divided between the children.
Whilst the use of this new tax free allowance will be restricted to specific cases and it’s evident that the tax authorities will scrutinise its use to catch any potential misuse, it nonetheless offers good opportunities to families, especially where grandparents are looking to make cash gifts to their grandchildren to help them get set up in life.