Gifting across borders – estate planning considerations between Scotland and France

An effective estate planning tool

Gifting is one of the most common and effective estate planning strategies in Scotland. Here, gifts are known as "potentially exempt transfers" or "PETs". A gift of any value can be made to any individual free of inheritance tax ("IHT") provided the donor survives for a period of 7 years after having made the gift. If the donor dies within the 7-year period after the date of the gift, the value of the gift is added back to the estate and, depending on the circumstances and the overall value of the estate, will be subject to IHT. IHT in Scotland (like in the rest of the UK) is generally payable at a flat rate of 40%.

Although gifts are not subject to IHT unless the donor fails to survive for 7 years, they are disposals for capital gains tax ("CGT") purposes in the UK. Subject to any available reliefs, CGT may be due on the difference between the value of the asset when it is gifted and the value of the asset when it was originally acquired by the donor.

"Droits de Donation" or French gift tax

Gifting becomes much more complicated when the donor or the recipient of the gift has connections with another jurisdiction. In France, like here, gifting is also a popular way of passing wealth on to future generations. The rules there are substantially different though, and expert advice from advisors in Scotland and in France is essential if you have connections to France and are either making or receiving a gift.

When does French gift tax apply?

Liability to French gift tax arises depending on the tax residence of the donor and the recipient of the gift. French gift tax is also imposed on transfers of land and buildings located in France even if neither the donor nor the recipient is tax resident there. The tax is payable by the recipient of the gift.

Unsurprisingly, an individual who is tax resident in France will be liable to French gift tax on all worldwide assets transferred above the relevant thresholds.

However, non-French tax resident individuals can still make gifts that give rise to French gift tax if the recipient of the gift is tax resident there (and has been tax resident there for 6 out of the last 10 years) or if the asset being gifted is in the form of land or buildings located in France.

There is no French CGT (impôt sur les plus values) payable on gifts in France but those who are not French tax resident may still be subject to UK CGT on the disposal of assets there.

What are the allowances?

There are gift allowances in France which vary in value depending on the relationship between the donor and the recipient of the gift. Crucially, there is no allowance available for gifts made to non-family members. Gifts made every 15 years, under the available allowance are not subject to gift tax (though they may be subject to French IHT if the donor dies within the 15-year period because it’s value will be added back to the estate). In 2023, the allowances are as follows:

There is an additional allowance of €31,865 available on gifts from any parent, grandparent or great grandparent (under the age of 80) to each descendant (over the age of 18). If there are no direct descendants, this additional €31,865 allowance is available on gifts to each niece and nephew.

The effect of these rules is that each child can receive up to €131,865 from each of their parents every 15 years, free of tax.

What if French gift tax is payable?

Gifts over the thresholds above are subject to an immediate charge to French gift tax. Like French inheritance tax, gift tax is levied on an increasing scale. The rates of tax applicable to gifts will depend on the relationship between the donor and the recipient and the value of the asset being gifted.

The rates applicable to gifts between parents and children are the same as those between spouses and civil partners:

Rates applicable to gifts between siblings:

There is a flat 55% rate applicable to gifts to nieces and nephews and other family members. There is no available allowance for gifts made to non-family members and those transfers are taxed at a flat rate of 60%.

Gifting across borders?

Whatever your connection to France, bespoke advice in both jurisdictions is essential before you decide to make a gift. Our experts will work collaboratively with trusted French legal advisors and are here to help you discuss what your international connections mean for you and your estate planning situation.

Jessica Flowerdew is a Scottish qualified lawyer only and is not able to provide French legal or tax advice. This insight article is aimed at highlighting the pitfalls that can arise in cross border estate planning exercises and is informed by her experience of advising clients with connections to Scotland and France where she has worked alongside French experts.