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Service France
Please note that taxation and national insurance is a complex subject and you should not take or refrain from taking any step without full independent advice on the particular facts of your case. The content of this article is of a general nature and no liability is accepted in connection with it.
France’s new finance minister, Nicolas Sarkozy, hit the ground running in announcing this exemption at his first major press conference. He wanted, he said, to “encourage, for a period of one year, the transfer of savings to the younger generations” – demonstrating support for “solidarity between the generations”.
The tax break will run from 1st June 2004 to 31st May 2005. Everyone will be allowed to gift up to €20,000 to each of his or her children or adult grandchildren (i.e. 18 or over) tax free. Such a gift would usually be taxable under France’s gift tax, whereby gifts are taxed at the point of despatch, (a) if the donor is French resident, (b) if the gift is made out of assets situated in France, or (c) if the donee is French resident and has been for 6 of the previous 10 tax years. These tests are either/or. This is unlike the UK where most gifts are potentially exempt transfers which are only taxable if the donor dies within seven years.
France’s gift tax discourages lifetime gifts (so-called inter vivos gifts, as opposed to testaments on death) because the tax imposed on gifts is higher than that imposed on inheritances. Like inheritance tax, the tax is paid by the donee.
To obtain the exemption, the donee must declare receipt of the gift, within one month of receipt, on Form 2730, available from http://www.impots.gouv.fr.
Much of the detail is as yet unclear, but one can make assumptions: firstly, that the exemption will be available wherever the tax would otherwise have had to be paid – i.e. in one of the three cases above – so it is not necessary for both donor and donee to be French resident or even nationals. Secondly, that several gifts can be given to the same person throughout the year, provided they total no more than €20,000. Thirdly, that the gifts must be completed by 31st May 2005. Fourthly, that the exemption is in addition to the standard €30,000 total exemption for gifts between grandparents and grandchildren. And fifthly, that the definition of child and grandchild is the same as would be applied in the case of the “réserve héréditaire” – forced succession – and thus includes, amongst others, adopted children and children born of unconventional relationships.
Sykes Anderson has experience in advising on the gift tax and how to plan for it in the most efficient way. Please contact David Anderson by email or on 020 7398 4700.