For anyone relocating to or already living in France, it is crucial to consider their finances carefully. One subject that we are frequently asked about here at Kentingtons is French Gift Tax, otherwise known as “Droits de Donation.”
French Gift Tax is an integral part of the French taxation system. Therefore, French residents need to understand this tax and how it may impact their financial lives and those of their loved ones.
- 1 An Introduction to French Gift Tax
- 2 Who needs to pay French Gift Tax?
- 3 On what types of gifts is the tax levied?
- 4 How are Gift Tax rates determined in France?
- 5 What are the allowances and exemptions?
- 6 What obligations come with declaring gifts in France?
- 7 What are the penalties for non-compliance?
- 8 Conclusion: make sure you take seriously your French Gift Tax obligations
An Introduction to French Gift Tax
As its name implies, French Gift Tax is imposed on giving a gift (known as a “donation” in French) of money or property to a child, spouse, or another family member in France.
Regarding Gift Tax, a “gift” is generally considered a significant sum of money or the transfer of assets (typically real estate). However, in France, gifting is subject to strict rules regarding the kinds of gifts and transfers of ownership permitted and the level of Gift Tax, or “Droits de Donation”, that the recipient will be liable to pay.
In France, any gifts between people through property transfer are viewed as gifts or donations and are assessable to tax on this basis. French Gift Tax is assessable to all gifts, including cash, real estate, and movable assets.
Two key factors dictate the rate of French Gift Tax that the recipient can expect to pay: the value of the gift and the relationship between the recipient (or “donee”) and the donor.
Who needs to pay French Gift Tax?
If you are a resident of France, you will be automatically considered a resident for tax purposes. This means that all your assets – wherever they are in the world – will be assessed to French Gift Tax or “Droits de Donation”.
As a general rule, the person receiving the gift pays the tax instead of the individual who gives the gift. So, if you have received a gift as a resident of France, you will need to declare it.
However, the most common situation we see here at Kentingtons involves people who live in France gifting to their family outside of France. In this scenario, the donor must complete the paperwork and make sure the tax is paid.
On what types of gifts is the tax levied?
In France, any gift – whether a large sum of money, a house, a valuable piece of art, or shares in a business—is considered assessable to tax.
Consequently, if someone does make a gift, it will be assessed to this tax. It does not matter whether the gift is given to a family member, a friend, or a stranger—the Gift Tax will still be assessable.
It is typically necessary to declare more significant gifts on a tax return, even if Gift Tax is not due, noting that assessable does not mean it will be taxed.
How are Gift Tax rates determined in France?
The tax rates for “Droits de Donation” are not universal; they are progressive and vary depending on the gift’s value and the relationship between the giver and the recipient.
The closer the relationship between the two parties, the lower the tax rate. This reflects the high value placed on family ties in French culture.
We have detailed the French Gift Tax rates for 2023 below. Failure to pay the relevant tax can result in penalties and fines.
Gifts between parents and children
| Less than €8,072 | 5% |
| €8,072 to €12,109 | 10% |
| €12,109 to €15,932 | 15% |
| €15,932 to €552,324 | 20% |
| €552,324 to €902,838 | 30% |
| €902,828 to €1,805,677 | 40% |
| More than €1,805,677 | 45% |
Gifts between a married/PACS couple
| Less than €8,072 | 5% |
| €8,072 to €12,109 | 10% |
| €12,109 to €15,932 | 15% |
| €15,932 to €552,324 | 20% |
| €552,324 to €902,838 | 30% |
| €902,838 to €1,805,677 | 40% |
| More than €1,805,677 | 45% |
Gifts between brothers and sisters
| Up to €24,430 | 35% |
| Greater than €24,430 | 45% |
Gifts between other family members
A fixed-rate tax of 55% applies to nieces, nephews, and other family members. Meanwhile, a flat rate of 60% is imposed for gifts made outside the family.
What are the allowances and exemptions?
Some allowances and exemptions exist concerning French Gift Tax, which is exceptionally favourable for direct family members. When French residents understand these allowances, reducing their tax burden is easier.
Some transfers are exempt from the tax. These include “reasonable gifts” such as birthday or wedding gifts and subsistence support – for example, if a parent transfers money to their child to help with such “everyday payments” as rent and bills.
Loans may also be exempt from gift tax, although they may be judged on a case-by-case basis.
The gift tax exemption resets every 15 years, so after this time has passed, another gift may be made up to the exemption limit with no tax consequences.
Spacing out gifts over time is an obvious strategy; however, the 15-year reset time has made this task more difficult.
Nonetheless, gift planning can help achieve the most tax-efficient outcomes. Understanding the allowances and getting the timing right is critical. For this reason, it is always advisable to seek professional advice about tax matters such as these, as everyone’s situation is different.
What obligations come with declaring gifts in France?
Individuals living in France must be aware of the regulations around declaring gifts. The French take formality seriously, so expatriates in France must make sure all the necessary steps are taken, which will help avoid any significant legal headaches.
To reiterate what we stated above, gifts in France must always be declared to the tax authorities, even if they do not give rise to the payment of “Droits de Donation”. So, when someone, living in France, gives or receives a gift, they must ensure they have all the relevant paperwork in order and have completed the essential processes.
The declaration of gifts for tax purposes is generally made with CERFA form 2735 SD, titled “Déclaration de dons manuels et de sommes d’argent”. As we also referenced earlier, in cases where the beneficiary is outside of France, the donor will be responsible for completing the form and ensuring the tax is applied.
What are the penalties for non-compliance?
Any resident of France must be truthful in declaring their total income. Any failure by such an individual to practise the highest standards of transparency in their tax returns can lead to severe legal and financial consequences, potentially including fines, penalties, and being listed with their tax office.
This, in turn, underscores the importance of those living in France engaging the services of a skilled tax advisor. Such professionals typically possess a comprehensive understanding of local and global tax laws, which will be instrumental in their clients’ efforts to minimise their tax burden legally while navigating complex cross-border taxation issues.
Gaining counsel from a knowledgeable French tax consultant can help guide a resident of France through the management of their gifting and the associated taxes. This way, the client can always be sure of making informed decisions.
Conclusion: make sure you take seriously your French Gift Tax obligations
Tax may be a fact of life in France – as it is elsewhere – but it is also a vital issue that cannot and should not be avoided.
French residents need to ensure they fully understand the concept of “Droits de Donation.” Here at Kentingtons, we always encourage such residents to speak to an expert, recognising that every person’s situation will be unique.
Contact our team today to learn how we can advise and assist you.