Gifting Your French Property to Your Kids
Volume XXI, Issue 17
Next week when I’m in Nice, with our Niçoise Notaire, I will be signing over the title of my Paris apartment to my daughter so that she will not be burdened with the enormous inheritance taxes* that will be imposed on her when I kick the bucket.
These are French taxes to which I am completely opposed. Children in France cannot inherit the home they grew up in without paying exorbitant taxes and fees to keep it. As the home has increased in value, especially an apartment in Paris in Le Marais, the inheritance taxes and fees are based on the current value, not the amount the parents (or I) paid for it many years earlier.
I had promised my daughter that I’d never sell our Marais apartment—it has been truly our home for 26 years, so it’s not something one can give up unemotionally very easily. When I purchased it, I was much younger and wasn’t thinking about inheritance, otherwise, I would have included her on the title from the outset. Now, 25 years later, I look back and realize the mistake. Hindsight is 20-20 vision, n’est-ce pas?
Gifting the property to my daughter was the most cost-effective option, after looking at many different angles, even knowing I should budget around 5% of the property’s value in taxes and fees. Gift tax allowance is €100,000 between each parent and child, so if the property is not worth more than €200,000, there would be no gift tax to pay. Gifting part of the property now and retaining a life interest for myself (usufruct**) was the perfect option, since I intend to live another 20 to 30 years (my mother died at 98, so I’m hoping she passed on her good genes). In this case, the value of the gift and the taxes and fees payable would be reduced. Either way, upon transfer, the child would be liable for capital gains tax and social charges if they sell within 30 years. It’s as if Erica had done a classical purchase, and uses the same system and calculation for capital gain tax when she resells. I will leave this to her decision to make, but at least gifting it to her now is most cost-effective.
When a title is transferred, Notarial taxes and fees are assessed, so it’s not an inexpensive transaction. And the basis is the current value of the property, skewed by my age which costs less if the transaction takes place prior to my 71st birthday.
For more specific information, visit Chambre de Notaires website.
Calculating the usufruct: If, for example…
• the usufructuary and the bare owner agree to sell the property, how can the price be shared between them?
• your parents give you the bare ownership of an apartment, on what value will the Treasury be taxing you?
The question of valuing usufruct and bare ownership (the two are indeed related) is therefore particularly important. A tax scale is required to calculate the rights owed by the usufructuary and/or the bare owner in the case of donations, inheritances, sales, exchanges, contributions to society, etc.
The following chart explains why I am hurrying to do this now before I turn 71 as it will cost me much more!
Yes, the French tax rules are complicated, so you don’t want to plan this without professional advice. The best time to start planning is BEFORE you purchase the property so that you can be smarter than I was and set up the least expensive inheritance taxes from the outset. But if you didn’t and wish to remove the burden of the taxes from your children, then consult with your Notaire, tax advisors or other professionals who can provide the best answers.
Ideally, I would have purchased the apartment with the “démembrement de propriété”*** from the beginning to avoid these second registration costs and donation duties. At the time, I would have given the money to my daughter from the US to purchase the property in France and would have avoided all of this! The problem was that I was so much younger and wanted to keep control of the asset and not have my (then, very young) child involved.
In my case, I am only taxed on the value of the “nue-propriété” which is 60% (because I am less than 71 years old, so my usufruct is 40%).
For example, consider if the full value of the property is 500,000€ (a rounded amount for illustration purposes).
The usufruct is evaluated at 40% = 200 000€ (on which I will not be taxed).
The nue-propriété given to my child is 60% and is therefore 300,000€ (500,000€-200,000€) on which I am taxed before any allowance).
It is possible to give, per parent and per child, the sum of 100,000 € every 15 years (since July 31, 2012), without having to pay any gift tax.
So based on the sample, I will be taxed on 200,000 Euros. The gift duties are then calculated by the French taxes in “tranches” (slices or categories) as follows:
On top of this is a classical registration cost of 9,950€, so a total of 68,144€ is due in order to make the transfer of title of a property valued at 500,000€.
From my perspective, this is a good deal for my daughter…and that’s the goal. Remember, if you can do this BEFORE you buy the property, then that’s the best, smartest and most cost-effective option, but if you didn’t, like me, then this is a viable solution.
For more detailed information on making a property donation in France, visit this website page.
*See this section on succession and inheritance taxes.
** Usufruct: In the context of property ownership, the owner has three prerogatives: the right to use the property, the right to collect income from it, and the right to dispose of it. These can be divided into two groups; usufruct, which includes the right to use and collect income, and bare ownership, which includes the right to dispose of the property. Ownership is the combination of both.
Usufruct is typically a temporary right that ends upon the death of the holder. However, it can also be established for a fixed period, known as temporary usufruct. The person who has the right to use the property and collect income is called the usufructuary, while the person who has the right to dispose of the property is the bare owner.
It’s important to note that usufruct is different from the right of use and habitation. The latter is a strictly personal right that only allows for dwelling in the property, without the ability to rent it out. Usufruct, on the other hand, is a real right that can apply to both buildings and furniture.
*** The “démembrement de propriété” is the legal act which consists in dividing the full property into bare ownership and usufruct. It is a mechanism often used in the family at the time of a donation or an inheritance. Its main advantage is to reduce tax costs.
The Adrian Leeds Group®
Adrian with her daughter, Erica Simone