French tax law on gifts at odds with Irish practice

I live in France and my parents gift me €6,000 every year. The French tax authorities are asking questions about it and refuse to give me my income tax declaration (which impacts everything over here).

Would you have any advice for me? Should I get my mother to confirm it is a tax-free gift? Am I liable for tax on the amount in France?

Ms COH, France

You seem to have got caught in the classic bind of competing rules that apply in different tax jurisdictions – even within the European Union.

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The small gift exemption to which you refer is an increasingly popular way for families in Ireland to conduct (relatively) small-scale and entirely legal tax planning between generations.

As regular readers of this column will know well, a person may gift up to €3,000 in a tax year to any other person. They don’t have to be related, though they generally are, and it doesn’t have to be a recurring annual commitment, though it often becomes that.

Between parents and children, each parent can gift up to the threshold, so, assuming both parents are still alive, they can essentially gift tax-free up to €6,000 to each child (and potentially the same to a child’s partner, if relevant).

As you can see, it can mount up to a very valuable support, all the time reducing eventual exposure to inheritance, or capital acquisitions, tax.

However, the small gift exemption as we know it is not a feature of the French tax code.

That’s not to say they don’t allow tax-free transfers between generations – they do. But they organise them in a different way. And, as it happens, the sums that you can gift under French law are more generous.

Rather than an annual gift, the French permit a single financial gift in any 15-year period. It used to be every decade but the rules were tightened in 2012.

How much you can gift depends on the relationship between the donor and the beneficiary – unlike the flat rate prevailing in Ireland.

Each parent

A child can receive up to €100,000 from each parent without any liability to tax. That compares with the €45,000 threshold that would apply in Ireland over the same period.

Grandchildren can be gifted up to €31,865 from each of their grandparents while siblings can also receive €15,932 from each other. For nieces and nephews, the maximum they can receive from aunts or uncles is €7.967.

And, as in Ireland, these amounts are independent of each other. So, just because you have received, say €80,000, from a parent as a lump sum in a 15-year window, there is nothing to stop you also receiving money from grandparents, siblings, aunts and uncles within the category limits.

* In addition, if the donor is under the age of 80 and the child or grandchild over the age of 18, it is possible under French tax law for the donor to gift a further once in a lifetime gift of up to €31,865 to each eligible recipient without anyone incurring a tax liability. If you were lucky enough to have a great-grandparent still living, and be over the age of 18, you could receive a one-off lifetime gift of up to €5,310 from them.

However, it does need to be declared with the tax authorities. Registering even tax-free gifts with the authorities is good practice because, in France, if there is no record of a lifetime gift and that gift is subsequently discovered by the authorities, the beneficiary can be landed with an inheritance tax bill. There is a special form for this called the Déclaration de Dons Manuels et de Sommes D'argent (declaration of manual gifts and sums of money).

Sliding rate

Over the tax-free thresholds, you are looking at a sliding, banded rate of taxation and this differs depending on the relationship between the donor and the beneficiary. For gifts from parents to children, it starts at 5 per cent before moving up fairly rapidly to 20 per cent on sums just under €16,000.

Once you get over the €550,000 mark, for those who should be so lucky, the tax rate jumps to 30 per cent and, eventually, to 45 per cent on even larger sums.

As I mentioned, these figures are banded so – even if you are receiving €100,000 in excess of the tax free threshold – the first €8,000 or so is taxed at 5 per cent, the next €4,000 at 10 per cent and so on.

So, for you, it appears that your parents will need to amend the way they gift you money. The Irish system of annual stipend falls foul of the French regime of “once every 15 years” gifting and so the sums will be taxable. Writing a letter confirming the sum as a gift is unlikely to help.

My guess is that you will face a tax bill for all bar the first year’s gift and your parents will not be allowed gift you again tax-free until 15 years has elapsed from the tax year that first gift was mode.

However, French inheritance and gift tax law is far from straightforward and you would be well-advised to consult an accountant in France on the subject for a clear and comprehensive understanding of your tax position and guidance on how your parents can continue to make gifts to you.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice

* This article was edited on May 29th to clarify that donors must be under the age of 80 to give a lifetime gift, not over that age, as originally stated.