France and a 'Potentially Exempt Transfer' (PET)

You are fiscally resident in France for tax, habitually resident for inheritance purposes and presumably you will remain so until your death, so this means French law and tax applies to any lifetime gifts you make.

A UK PET donation allows donors to make lifetime gifts that after seven years fall out of their estate for inheritance tax. If the donor survives fewer than three years, the gift fails and is again calculated in the estate; but from three to seven years a taper scale trims the value each year.

Things are very different in France: it has a 15 year time limit for gifts and no reduction at all before then.

France’s reserved heir rules limit beneficiaries but, for you, a gift to your children should not conflict.

If, on your death, English law has been elected, the reserved heir rules do not then apply but gift totals will still be tax-assessed if the donor does not survive for 15 years.

Tax for notarial lifetime gifts is broadly along the same lines as inheritance tax. While spouses are exempt from inheritance tax, lifetime gifts are only tax-free up to €80,724.

Each child can receive €100,000 tax free from each parent. Above this, gift tax of from 5% to 45% applies on a sliding scale.

These amounts can be renewed every 15 years.

Gift tax is payable by the beneficiary; however, if the donor opts to also cover the tax, that is outside the 15-year rule and it is not seen as a gift.

Property gifts must be registered by a notaire.

In theory, cash gifts can be made by cheque, bank transfer etc, with a written record for sums over €1,500. An extra €31,865 cash gift is allowed between parent and child/grandchild, making €131,865 tax-free in total, as long as the recipient declares it on form “2735 déclaration de donsmanuels”.

Question answered by Barbara Heslop of Heslop & Platt answers a reader query

Tel: +44 (0)113 393 1930 - www.heslop-platt.co.uk contact@heslop-platt.co.uk

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