Can you sign over your French property to your children without paying tax?

Short answer: it’s complicated.

The first thing to remember is that France applies forced heirship, which basically means that parents cannot disinherit their children. The law specifies that each child is entitled to a certain percentage of the entire estate (depending on how many children you have) - so depending on the size of your estate, you may not be able to gift a French property to just one of your children if you have several.

This law doesn’t just apply to French citizens. It also covers anyone legally resident in France, unless they have chosen to impose the rules of another country on their estate planning.

Thanks to EU succession regulations (known as Brussels IV), foreign nationals living in France can add a codicil to their will stating that they wish to see their estate handled by the law of their country, in which case you would not be governed by French rules on inheritance for children.

READ ALSO Reader question: What are the rules on inheriting property in France?

If, however, you die in France as a resident without having made a will that contains such a codicil, then the French Civil Code will apply when your assets are divided up.

In most cases, this would not apply to second-home owners, although inheritance tax might - see below.

Taxes

Once we've got past who can inherit, we come onto inheritance taxes.

The standard rule is that if you are considered to be a resident of France, then your entire estate, including assets located outside of France, can be subject to inheritance tax by French authorities (subject to international agreements and bilateral tax treaties).

In France, inheritance taxes can range from 0 to 60 percent based on the person’s relationship with the deceased. In contrast to the US and UK, it is the recipient who is responsible for paying tax (based on the amount they receive) rather than the entire estate being taxed prior to distribution.

There is, however, some good news for people who want to pass a French property onto their kids - for children inheriting from their parents (and vice versa) there is no need to pay any tax on an inheritance valued at less than €100,000.

For the part of the inheritance worth more than €100,000, inheritance tax is charged at between five and 45 percent depending on the value - this is charged on a sliding scale so you pay no tax on the first €100,000 then tax on a sliding scale up to 45 percent, although the 45 percent rate would only kick in on the portion of the inheritance worth more than €1.8 million.

It's also worth noting that the tax rate is charged based on the amount each child is receiving individually, not the total value of the inheritance - so if you have a house worth €200,000 divided between three children, each child is still well below the threshold for paying inheritance tax.

One thing to watch out for, however, is that step-children who have not been formally adopted do not benefit from the family member tax rate, and instead will usually have to pay the highest rate of 60 percent, so 'blended families' would benefit from getting some professional tax advice.

Ownership transfer

If you decide you do want to transfer ownership, there are some things to be aware of.

“Notaries, being cautious professionals, generally advise against transferring ownership of one’s primary residence during one’s lifetime,” wrote notaries Me Nathalie Couzigou-Suhas and Me Flore de Saint-Maurice in a live Q&A for Le Parisien last June.

“Even if one retains the usufruct — that is, the right to remain in the property for life… or to rent it out — their consent will be essential for selling the property. If everyone agrees to sell, the proceeds are typically divided between the children and the parents.”

It is possible, however. One option would be to gift your heirs la nue-propriété - this grants ownership of the property to the child, while retaining the right to continue living in (or renting out) the house – this right is known as the usufruct.

Under this set-up, the donor retains the right to use the property and/or receive any income it might generate if it is a rental property (if, for example, it is a secondary residence), while the owner has the right to fully dispose of the property at the end of the usufruct period, generally upon the death of the usufructuary (aka the person with the right of usufruct) — when full ownership of the property transfers to the owner of la nue-propriété.

This would make the children responsible for ownership expenses such as property tax.

Gift tax

However, France also has a 'gift tax', that requires the recipients of substantial gifts to pay tax on the gift they have received - this covers gifts of money but also assets such as property.

As with inheritance tax, there are tax-free allowances which depend on the relationship between the person giving the gift and the recipient.

For parents gifting to children, the tax-free amount is €100,000 (exactly the same as with inheritance tax).

For gifts worth more than €100,000, tax is paid on a sliding scale as follows;

• Five percent for amounts up to €8,072 = €403.60
• 10 percent for amounts between €8,073 to €12,109 = €403.70
• 15 percent from €12,110 to €15,932 = €573.45 
• 20 percent from €15,933 to €100,000 = €16,813.60 

So, a one-off gift of €200,000 (or a property worth €200,000) from a parent to a child would – after the initial €100,000 deduction – attract a tax bill of €18,194.

The €100,000 tax-free allowance also covers a 15-year period, so if you gifted €50,000 one year and then €51,000 two years later, you would go over the tax-free threshold.

Basically, the amount of gift tax your children would pay in most cases works out very similar to the amount of inheritance tax they would pay.

READ ALSO EXPLAINED: The French tax rules on financial gifts for family

If you plan to donate a property, remember that any donation of real estate requires a notarial deed, so this would be an extra up-front cost.

And don’t think you could get round France’s inheritance laws by selling your property to your children at a massive discount. According to Me Nathalie Couzigou-Suhas and Me Flore de Saint-Maurice, tax authorities monitor all property sales in France, and would look very unkindly on such a deal.

The Local France’s journalists are not legal experts and this article is only intended to provide general preliminary information. Please enlist the help of a lawyer in France for professional personalised advice.