The following case illustrates the civil and tax implications of a cross-border family gift. It involves a French couple living in the UK, planning to pass on part of their estate to their children, who are also expatriates, while anticipating a future return to France.
Mr and Mrs Bhé, French nationals, live in the UK with their two adult children. The couple hold €1,000,000 in financial securities deposited in Switzerland and wish to give €500,000 to each of their children, who are also UK residents. The gift would be formalized in the UK, without the intervention of a French notary.
However, the Bhés plan to return to France when they retire. A return to France by one of the children cannot be ruled out.
Tax compliance under French law
Under French tax law, prior gifts are taken into account for the calculation of transfer duties, even if they were made abroad. A gift made outside France may therefore escape taxation initially, but become taxable in the future if one of the protagonists establishes residence in France.
As soon as a donation acquires a definite date, it can be taken into account when opening an estate or in the event of a tax audit, according to the tax rules in force at that date.
By registering the gift in France, you can prove that the transfer was made outside the scope of French tax, and thus avoid the risk of subsequent taxation.
Civil observation in French law
The english form of gift does not allow the values of the assets given to be fixed on the day of the gift. In the event of a return to France, this could pose a problem for the succession.
It is therefore advisable to reincorporate the donation into a notarized deed of gift-sharing in France. This will :
Enter the value of the assets on the day of the gift, in accordance with article 1078 of the French Civil Code.
Determining the reference estate
Disregarding the inheritance ratio
Preserving the balance between heirs, particularly in the case of differentiated management of sums received
Gift-sharing reinforces legal certainty and avoids the need to “redo the books” when parents die.
The spouses will also be able to choose French inheritance law, to ensure consistency throughout the system.