Gifts and Taxes in France

This post is part of a pair of articles on understanding U.S. and French gift tax laws as an American in France. The post on U.S. gift tax laws is linked here.

If you read our post on U.S. gift tax laws, you will have noticed that the recipient of the gift never has to worry about filing or paying taxes on the gift. That changes if you are a resident of France. And American expats, in particular, should be aware of when and how to pay taxes on gifts.

What is a “gift”?

France and U.S. define gifts in the same way. A gift can be cash, property or goods that are given without “consideration.” Which is to say, it is something given with nothing expected in return. In both countries, gift tax laws are an integral part of estate tax laws— you can’t understand gift taxes without understanding how they fit into each country’s rules on inheritance. Both countries treat charitable donations separately, and we don’t address those in these two posts.

What are the French tax rules for gifts?

If you are a resident of France, French authorities require you to report gifts that you receive during the year. Generally speaking, you will report a gift whether it comes from a corporation, a family member or anyone else. But some common sense is called for here. The French tax authorities include this guidance on the impot.gouv.fr website:

 Les petits cadeaux considérés comme de simples présents d’usage ne sont pas à déclarer.

Pour ne pas être considéré comme un don, un cadeau doit être donné pour une occasion particulière (par exemple fêtes religieuses, anniversaire, mariage, ...).

Il doit également être d'une valeur raisonnable compte tenu :

·       de la personne à qui il est accordé,

·       de l’occasion considérée

·       ainsi que de l’importance de votre patrimoine et de vos revenus.

Attention : cette qualification est une question de fait qui s'apprécie au cas par cas, selon la nature du don et de l'ensemble des circonstances.

Translated roughly:

Small, customary gifts do not need to be declared. To not be considered as taxable, a gift should be given for a particular occasion (for example, a religious holiday, birthday, marriage…)”.

It should also be of a reasonable value taking into account:

·      the person to whom it is given,

·      the occasion,

·      as well as the size of your assets and income.

Attention: this qualification is a question of fact to be assessed on a case by case basis, depending on the nature of the circomstances.

To make this case by case test a little easier, French financial advisors often recommend limiting the value of a gift to 2% of your income or your assets to keep your gift within the “petits cadeaux” exception.

How do you report a gift in France?

To make the report, you can go online to your impot.gouv.fr account, or you can manually fill out form cerfa 2735. You have a month after receiving a gift to file your form and pay any tax that is due.

In some cases, though, you can opt to put off paying the tax until after the death of the donor. This can happen if the gift was worth more than 15,000€, in which case you would file a form 2734 within a month of the date of death. If the gift involves any sort of real estate, you will have to use a notaire to report the exchange.

This option to defer taxes until after the death of the donor is your first clue that French inheritance law, like its U.S. counterpart, views regular gifts to be part of a donor’s lifetime estate. In other words, French tax law treats gifts during your lifetime as a prelude to the inheritance you will upon your death. Not surprisingly then, the next question, “how much is the tax” depends largely on the family ties that determine inheritance.

The French tax authority provides an interactive overview of inheritance rules on its website. But you should also be aware that EU regulations allow you as a foreign national to elect to have your estate follow the inheritance laws of your home country (an issue currently under legal review).

How much is the tax?

Gift taxes in France depend largely on the relationship between the donor and the donee. Once you report a gift, a graduated tax scale determines the amount of the tax. You can find the scales here on the tax authority’s website. But depending on the circumstances, you still might not owe any tax on a gift you’ve received.

Every 15 years, every donateur (“giver”) is given an “abattement” (allowance) for gifts to family members (children, parents, sisters, etc…). You can give up to that amount, cumulatively, over the 15 years before any tax is due by the recipient. There is a special allowance for recipients who are handicapped.

French law also provides an exemption strictly for monetary gifts within a family from an older generation to a younger one. This applies so long as the recipient is an adult (at least 18 years of age) and the giver is less than 80 years old. This exemption currently stands at 31,865€. It can be added to the allowance mentioned above and is renewed every 15 years. You will find these provisions referred to as “dons familiaux d’une somme d’argent” in tax information materials.

There is a smaller, third category of deductions if the first two have not eliminated your tax bill for a gift. Those apply to recients who are disabled war veterans and gifts of an entire business by an owner under the age of 70 years.

The American Expat exception

As always, the treaties between the U.S. and France make tax laws slightly different for American residents in France. If you are an American resident in France receiving a gift from any other French resident, you will need to follow the French gift tax rules. But the estate tax treaty between the two countries seems to give American residents in France the right to receive gifts and inheritances from the U.S. tax free up to the U.S. estate tax exemption (currently at $12,920,000).

The little qualifier there is a result of some confusion about how the Treaty should be interpreted in light of the difference between who pays gift and estate taxes in the two countries. In either case, you will report your receipt of a gift or inheritance in France. If things continue to work as they have, French tax authorities will credit your tax bill to eliminate the tax in France.

It is worth noting here that a gift from a non-American French resident to an American (no matter where that American resides) can throw up a completely different problem. So long as the gift is not real estate, the gift itself should not make the American recipient suject to French taxes. But Americans are always subject to the U.S.’s Foreign Gift regulations. Under these requirements, there are strict penalties if you fail to report to the U.S. government a gift or inheritance of more than $100,000 from an individual or more than $16,388 from a foreign corporation or partnership. You can see more on that in the article on American gift tax laws.

Have more questions about gift taxes in the U.S. and France? Ask us in the comments section below.