How lifetime gifts work as an alternative to bequests in France

Lifetime gifts can offer significant tax advantages over bequests and may also help avoid potential disputes between heirs after your death.

The practice is encouraged by French law as it allows you to pass on your French property more quickly to younger generations. 

It is, however, important to note that gifts exceeding certain allowances may still be subject to inheritance tax.

Lifetime gifts and French inheritance law

You can make gifts to anyone, but if your estate will be governed by French inheritance laws, the rights of héritiers réservataires (reserved heirs) must be considered. 

Reserved heirs are typically children, who are entitled to a minimum portion of your estate. 

If you make significant lifetime gifts (une donation) that affect their inheritance, they can challenge these gifts after your death.

For example, if you have one child, French law requires that they inherit at least half of your estate, taking into account any lifetime gifts. 

It is often challenging to predict the value of your estate at the time of gifting, but this legal framework must be kept in mind.

Minimising challenges with donations-parts

It is possible to sign a donation-partage (a deed of gift) with a notaire while all your children are present and in this case the gift is more difficult to contest after your death.

The children usually receive something of roughly equivalent value, even if not the same in nature.

An alternative way to make a gift that could potentially disadvantage reserved heirs is by using a pacte de famille (family agreement). 

This provides more flexibility and can ensure that the distribution is clearly agreed upon in advance thereby avoiding future legal action.

Transgenerational donations

French law also allows for donations-partages transgénérationnelles, meaning that you can pass on French property to multiple generations. 

For example, a person with two children can distribute their estate between the children and the grandchildren, with the consent of the children. This is a helpful strategy if you want to involve different branches of the family.

Tax implications of lifetime gifts

Under Article 750 of the Code Général des Impôts, French tax rules on gifts depend on both the donor's and recipient's residency status:

If the donor is French-resident: 

All gifts are subject to French gift tax, whether the property is located in France or abroad.

If the donor is not French-resident:

Only French properties are subject to French gift tax.

If the recipient is French-resident, gifts of foreign property are taxed as though they were French property, unless the recipient has been domiciled outside France for more than six years in the last ten years.

Read more: Does residency of children affect French gift tax limits?

Gift tax allowances and exemptions

Gift allowances vary with kinship and are renewed every 15 years. For example, parents can give up to €100,000 to each child without paying gift tax, and this allowance can be used again after 15 years.

There is also an exemption of up to €31,865 for cash gifts to children, grandchildren, great-grandchildren, or if none then nieces and nephews, renewable every 15 years.

Spouses have a gift tax allowance of €80,724.

In theory, French law requires that all gifts be made through a formal deed with a notaire, ensuring proper documentation for tax and inheritance purposes. 

Notarised gifts are essential for property transfers, including real estate, to comply with registration and stamp duty requirements.

Manual gifts and declarations

Manual gifts, such as those made directly to someone (eg. cash, paintings, or shares), are not notarised but must still be declared. 

The declaration is made to the tax authorities, and it helps establish the tax-free allowance period. 

Manual gifts can be declared at a later stage, but tax will be based on the value at the time of declaration which could be higher.