Passing French real estate on to your children when the family lives abroad

The situation

Our support

1. 01

   Determining the tax treatment of the gift in each country

   We began by analysing the scope of French gift duties in light of article 750 ter of the CGI, taking into account:

   • the parents’ tax residence;
   • the children’s tax residence;
   • the location of the properties;
   • the direct or indirect way the assets were held;
   • the existence of any gift tax treaty;
   • the treatment likely to apply in the family’s State of residence.

   The French territoriality rules may subject property located in France to gift duties where the donor is not a French tax resident. They may also capture the transferred assets more broadly where the donor is domiciled in France or, under certain conditions, where the beneficiary is domiciled there. The analysis must, however, be conducted subject to the applicable tax treaties.

   Simplified example: the residence of the parents and children abroad does not, in itself, rule out French gift duties where the transfer concerns a property located in France.

   We coordinated this analysis with the advisers in the country of residence in order to identify any second right to tax and to check the mechanisms available to prevent or mitigate double taxation.

2. 02

   Organising a gradual transmission by gifting the bare ownership

   We then compared a full-ownership gift with a gift of the bare ownership, the parents retaining the usufruct of the properties.

   The dismemberment allowed the parents to transfer the bare ownership now, while keeping the enjoyment of the assets or the collection of their income. The respective tax values of the usufruct and the bare ownership are determined under the scale of article 669 of the CGI, according to the age of the usufructuary.

   Simplified example: where the bare ownership represents 60% of the full ownership for tax purposes, the gift of the bare ownership of an asset valued at €1 million is based on a tax value of €600,000, before applying the allowances and the gift-duty scale.

   We also examined the allocation of voting rights, income, expenses and management powers between the usufructuary parents and the bare-owner children, so that the dismemberment fitted the practical operation of the assets.

3. 03

   Allocating the assets through a shared gift (donation-partage)

   Rather than making several separate gifts, we worked with the notaire to prepare a shared gift (donation-partage), governed by articles 1075 et seq. of the French Civil Code.

   The aim was to allocate the transferred rights immediately between the children and to organise the consequences of any later rebalancing.

   Our work covered, in particular:

   • defining the lots allocated to each child;
   • analysing the balance between the lots;
   • reviewing earlier gifts;
   • preparing clauses to preserve the separate-property character of the assets received;
   • analysing the conditions under which one child could later take over another’s share.

   Simplified example: each child may benefit from a €100,000 allowance per parent, provided by article 779 of the CGI. For two parents and two children, the theoretically available allowances may thus reach €400,000, subject in particular to earlier gifts taken into account under the lookback rule (rappel fiscal).
4. 04

   Protecting the surviving spouse

   We arranged for the usufruct to be retained by the parents and examined what would happen to that usufruct on the death of the first of them.

   The deed was drafted so that the surviving spouse could, depending on the terms chosen, keep the usufruct of all the assets until their own death. The aim was to prevent the anticipated transmission from weakening their material situation or depriving them of the income from the properties.

   Point of attention. Gifting the bare ownership is not merely about calculating a reduced tax base. The deeds must also organise the management of the assets, the collection of income and the protection of the surviving spouse.

   A transmission with reserved usufruct must therefore be thought through as a tax, civil and family operation at once.

5. 05

   Adapting the French clauses to the international context

   The international dimension of the matter called for particular care. A French legal institution may be effective for tax purposes in France without being recognised in the same way in the family’s country of residence.

   We therefore coordinated the French analysis with our foreign correspondents in order to examine, in particular:

   • recognition of the shared gift;
   • whether the civil effects attached to the freezing of values under French law could be obtained abroad;
   • the treatment of the reserved usufruct;
   • recognition of the surviving spouse’s rights;
   • the consequences of a return clause or a residual provision;
   • the future effects of the deed on the succession of the parents or the children.

   In the case handled, the exchanges with the Italian advisers focused precisely on the limits of recognition in Italy of the French shared gift and of the residual provision. The French mechanism could be treated there as an ordinary gift, so that certain civil effects expected in France, in particular as to valuation, required local analysis.

   Example: a clause that is effective under French law may receive a different characterisation abroad. Its treatment must therefore be checked before signing, and not at the time of the succession.
6. 06

   Securing the deed and the formalities

   Finally, we supported the family through to completion of the gift:

   • coordination with the French notaire;
   • exchanges with the foreign advisers;
   • review of the draft deeds;
   • checking of earlier gifts;
   • determination of the duties and costs attached to the operation.

   For gifts recorded by a deed executed abroad but taxable in France, the tax authorities’ guidelines provide specific rules for presentation to the registration formality and, where the deed is drafted in a foreign language, for producing a certified translation.