12. Gift Tax in France

1. Definition of a 'Gift'
2. Liability to Gift Tax
3. Rates of French Tax
4. Gifts of Real Estate
5. Gifts & French Inheritance Tax
6. Procedures for Declaring Gifts

12.1. Definition of a 'Gift'

In France a gift is called a 'donation', and French gift tax called the 'droits de donation'.

The definition of a 'gift' for the purposes of French tax law is defined in the ordinary sense of the word as the transfer by one person to another of any existing movable or immovable property made voluntarily and without consideration.

A gift may be in the form of cash, or goods, but it may equally take the form of the transfer of real estate, e.g. transfer of all or part of the family home to your children.

The gift must also be something that is in your ownership; you cannot give something you may own in the future, although due to French inheritance laws, you may not have an unconditional right to give away whatever you want to whomever you want. We consider this in more detail later in this guide.

However, the definition excludes those gifts which may ordinarily be made in the course of daily life.

So, for instance, wedding and birthday gifts do not come within the gaze of the French tax authority, provided the gift is reasonable by the living standards of the donor. Just what is 'reasonable' can only be established on a case by case basis but the tax office take a generous view for such gifts. You can read about the law and practice on this issue in our Newsletter article Xmas Presents and French Gift Tax.

In addition, support given to your children (or other family member) for their education, or merely as a means of subsistence if they were on a low or modest income, would not be regarded as a gift but rather a family obligation. Indeed, such support, known as a pension alimentaire', is tax deductible, although it must be declared by the beneficiary on their income tax return if resident in France.

The definition of 'subsistence support' is very broad, as was demonstrated in a case before the French Supreme Court in 2017, when the judges ruled that a mother who had supported her unemployed, divorced daughter and child for 18 years, during which she paid her a regular monthly sum of €800 in addition to the rent for the property, paid direct to the landlord, was considered subsistence support, without implications on gift or inheritance tax. The amount transferred was over €600K during the period in question, the daughter having previously enjoyed a well-paid professional career. The sums paid were declared each year on the income tax declaration made by the daughter.

Similarly, it is possible to grant a loan on generous terms rather than make a gift (and so avoid tax implications). Thus, the loan need not carry interest. Such arrangements are common for a prêt familial.

It is a legal requirement that a loan greater than €5,000 should be declared to the tax office with your tax return. The declaration should be made by the recipient of the loan. You need to do so at Déclaration de contrat de prêt. The rule applies not only between family members but also between friends. In practice, it is only necessary if the recipient is France resident, although it would be sensible to clear it with your tax office.

However, if you describe it as a 'loan', but there are no subsequent repayments of the loan, then it is likely to be considered to be a gift (prêt en donation déguisée).

In considering whether the act was a loan or a gift, the tax authority will have regard to all the factors - age of the parties, their personal income and wealth, amount of loan, terms of repayment, repayments made, verbal or written agreement.

A gift may be made without any particular procedure (don manuel/simple), or via the auspices of a notaire (acte), which is always required where real estate is being transferred.

Once given, the donor cannot later demand return of the gift, except under extraordinary circumstances, eg premature death of donee. For all practical purposes, a gift is irrevocable, although it is possible to stipulate conditions as part of the process.

We do not consider in this guide gifts to charitable bodies, which may attract tax relief.

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