Making a lifetime gift of French assets

A gift is an act whereby a person (the donor) gives assets during their lifetime to another person (the done).

Under French law you can, for example, gift a French property comprising of land and/or buildings to another person. However, the value of the property must not exceed the “available portion” of your estate, i.e. the portion of your estate which does not have pass to your reserved heirs – being your children or, if none, your spouse – under French law. If, however, you don’t have any reserved heirs, you are free to gift any or all your assets to other people.

To make a gift of your French property, you must:

  • be of sound mind, i.e. have sufficient mental capacity for you to know what you are doing;
  • be over 18 years old; and
  • have the legal capacity to dispose of your assets (you must not, for example, be bankrupt).

If the value of the property you are gifting exceeds the available portion of your estate, on your death your reserved heirs can challenge the gift and require it to be reduced as part of the estate administration process.

To prevent such a challenge, it is possible to enter into an inheritance agreement which would enable your reserved heirs to give up their right to challenge a gift that breaches their reserved portion of your estate after your death.

Due to a combination of French law and the 2015 EU Succession Regulation, known as Brussels IV, it should be possible for British citizens to give their property to whoever they like. However, this must be done very carefully, with the assistance of a Notaire and a French law specialist UK Solicitor, to ensure that there won’t be any issues under French or English law with “disinherited” reserved heirs/beneficiaries.

When gifting French property (i.e. land and/or buildings), it’s compulsory to have a Notaire draft the Deed of Gift and collect from you the relevant fees and taxes. The Notaire will then register the Deed of Gift with the relevant French authorities.

The donee must pay French gift tax, known as droits de donation or droits de mutation à titre gratuity, on the value of the gift received. The donee will be entitled to a tax-free allowance, the amount of which varies depending on the relationship of the donee to the donor – for example, a child currently benefits from the most generous tax-free allowance, closely followed by a spouse. French gift tax must then be paid on the remaining value and, again, the tax rates vary depending on the relationship between donor and done. In this instance, children and spouses benefit from the most beneficial rates whereas distant relatives and non-relatives (including step-children and unmarried partners) pay the most punitive rates (sometimes as much as 60%!).

If you are UK resident but have already given a French property to the same donee within the last 15 years, the donee’s tax-free allowance will be reduced/disapplied depending on the amount of it already used.

If you retain other properties in France and want to leave by Will to the same people that you have already gifted French properties to during your lifetime, you must survive 15 years for their tax-free allowances to renew (as the same tax-free allowances apply for French inheritance tax purposes on your death).

You should seek advice from your UK lawyer/tax adviser regarding the potential UK tax implications of making a lifetime gift of French property to someone whilst you are domiciled and tax resident in the UK. The gift could, for example, be viewed as a Potentially Exempt Transfer (PET). This means that you would have to survive a certain number of years from the date of the gift for the property not to be considered as part of your estate on your death for UK inheritance tax purposes. You may decide to retain the benefit of your gifted French property by retaining the French law equivalent of a life interest in the property (known as an usufruit) or by continuing to stay in the property, rent-free, on a regular basis. If so, your gift could be considered under UK law to be a Gift with a Reservation of Benefit, which again means that the property will still be considered to form part of our estate on your death as far as UK inheritance tax is concerned. Therefore, it’s vital that you are fully informed before proceeding with a lifetime gift of your French property.

As well as French gift tax, you must also pay Notaire’s fees and disbursements for the preparation of the Deed of Gift and its registration at the French Land Registry. These fees are calculated in accordance with a fixed scale set by French law and based on the value of the property being gifted. As a general rule, you may expect the Notaire’s fees to amount to around 3% of the value of the property, although for low value properties this percentage is likely to be significantly higher.

If all that hasn’t put you off and you’re still considering gifting all or part of your French property to someone during your lifetime, please do contact us for further advice.