Article 751 of the French General Tax Code establishes a tax presumption that is particularly dreaded by taxpayers when it comes to asset transfers. This provision allows the tax authorities to add certain assets back to the tax base in the event of inheritance or dismemberment of ownership. Understanding the mechanisms of tax presumptions is essential to anticipate and, if necessary, effectively contest this reintegration.

This presumption is based on a logic of combating tax evasion, but it can sometimes be applied to legitimate situations. You should be aware of your rights and the means available to defend yourself against this measure, which can lead to a significant tax reassessment.

What is tax presumption 751 CGI?

Article 751 of the General Tax Code allows the tax authorities to reintegrate certain assets transmitted before death into the estate. This mechanism is primarily intended for situations where the deceased has retained the use of assets that he or she had previously donated or transmitted, without any declared consideration.

The presumption applies when three cumulative conditions are met: transfer of ownership prior to death, retention of enjoyment of the property by the deceased until death (generally with no time limit), and absence of remuneration or declaration of such enjoyment. For example, a parent who gives his or her principal residence to his or her children while continuing to live there free of charge without formalizing this occupation exposes his or her estate to the application of article 751. The tax authorities then presume that the transfer was not real but fictitious, intended to evade inheritance tax, and reinstate the property in the taxable assets at the applicable rates (from 5% to 45% in direct line, up to 60% between non-parents).

Scope of article 751 of the CGI

Article 751 applies in two main situations: inheritances involving disguised gifts or anticipated transfers with an undeclared reservation of use, and property dismemberment transactions where the taxpayer transfers bare ownership while retaining the usufruct without any tax regularization. The presumption is triggered at death, when the tax authorities examine the consistency between previous transfers and the final asset situation. For example, the donation of a principal residence while the donor continues to occupy it free of charge, or the transfer of a family business while the effective management is retained, are frequent cases of reintegration.

Assets eligible for reinstatement include :

• Residential and commercial buildings
• Securities and securities portfolios
• Shares in non-trading property companies
• Bank accounts and cash

The appropriate tax declaration of any financial consideration is a decisive factor in avoiding the application of this presumption.

Specific situations covered

Certain asset configurations attract particular attention from the tax authorities. Gifts of principal residences where the donor continues to occupy the property free of charge are the most frequent application of article 751 CGI. This situation typically arises when a parent passes on his or her home to his or her children, while continuing to live there without formalizing an occupancy agreement or paying rent.

Transfers of family businesses in which the transferor retains effective management also represent an area of heightened vigilance. The tax authorities scrutinize situations where the director has transferred the shares but continues to exercise operational control and receive remuneration without clear justification for his status.

Arrangements involving non-trading property companies deserve particular attention. When the deceased held shares in a non-trading property company (SCI) while occupying the company’s assets without declaring the rent, the tax authorities regularly issue reassessments based on article 751. Strictly keeping annual accounts and formalizing occupancy agreements are decisive factors in preventing such reassessments.

Tax reintegration mechanism

When the tax authorities apply article 751 CGI, they reinstate the value of the property in the estate assets after identifying a transmission prior to the death and noting that the deceased retained enjoyment of the property. The tax reintegration is calculated on the basis of the property’s market value on the date of death. A concrete example: for a property valued at €300,000 at the time of death, passed on 10 years earlier to a child in a 20% tax bracket, inheritance tax would amount to €60,000 (after application of the progressive scale and tax allowances). This valuation on the day of death can generate a considerable total tax burden in times of rising property prices.

In addition to inheritance tax, late payment interest is charged at a rate of 0.20% per month from the deadline for filing the tax return. In the event of deliberate failure to comply, a surcharge of 40% is applied to the recalled duties. In the above example, if the reassessment takes place 2 years after the death and is qualified as a deliberate failure to comply, the total amount would be €87,840: €60,000 in duties + €2,880 in late payment interest (0.20% × 24 months × €60,000) + €24,000 in penalties (40% × €60,000). This situation often creates cash-flow difficulties for heirs.

Impact on estate taxation

Reintegration directly affects thetaxation of the inheritedcapital. It modifies the tax base, and can push the estate into a higher tax bracket. Inheritance tax, which is a direct tax payable by the heirs, is then calculated on a base increased by the reintegrated value. This situation often creates major cash-flow difficulties for heirs, who are forced to pay taxes on assets they thought were excluded from the estate.

The cumulative effect with other estate taxes can create an overall tax burden that is difficult to bear, sometimes necessitating the forced sale of certain assets to meet tax obligations. Reintegration under article 751 CGI can thus compromise the desired transfer of assets and upset the financial equilibrium of the heirs.

Means of challenging the presumption 751 CGI

When faced with a reinstatement based on article 751 CGI, the taxpayer bears the burden of proof to the contrary. This presumption, although established by the tax authorities, can be rebutted by demonstrating that the transfer was real and definitive, or that the use retained was justified and declared. Case law shows that challenges are successful in around 35% of cases where a declared rent can be proven, compared with only 15% for arguments based on the material impossibility of departure.

The main ways to challenge this presumption include:

• Proof of rent paid and declared: even symbolic, this financial consideration demonstrates the real nature of the transfer (success rate: 35%).
• Legal or contractual obligation: preservation of enjoyment resulting from a constraint beyond the control of the deceased.
• Material inability to leave the premises: documented medical, economic or social reasons (success rate: 15%)
• Absence of intention to evade tax: legitimate family, economic or patrimonial motivations, distinct fromabuse of right (CE, December 29, 2006, n°283314)

The contestation procedure begins with a reasoned response within 30 days of receipt of the rectification proposal. This first step determines the outcome of the dispute, and must include all arguments and supporting documents. If the reassessment is upheld, the taxpayer has 2 months from the date of assessment to lodge an appeal with the courts. Deadlines are strict: failure to meet them will result in the forfeiture of rights. Full documentation (deeds of transfer, rental receipts, tax returns, bank statements) is essential to rebut the presumption.

Dispute procedure

The procedure begins with a reasoned response to the tax authorities’ observations within 30 days of receipt of the rectification proposal. This first stage largely determines the outcome of the dispute. You must present all your arguments and supporting documents in a structured and complete manner.

If the tax authorities maintain the assessment, you can appeal to the departmental commission for direct taxes and sales taxes for an advisory opinion. If the disagreement persists, you can then lodge an appeal with the courts. There are strict deadlines for lodging appeals, and failure to do so will result in the foreclosure of your rights, making any subsequent challenge impossible.

Legal support and defense strategies

Given the complexity of article 751 CGI, specialized legal support may be required to analyze the soundness of the administration’s position and build a documented defense. To put together a complete file, you need to gather together all the deeds of transfer (donations, sales), proof of any rent payments, previous tax returns, correspondence with the donees, as well as bank statements and third-party attestations. There are strict deadlines for responding: 30 days to reply to the rectification proposal, then two months after the assessment to take the matter to court.

The cost of legal assistance generally ranges from 3,000 to 8,000 euros, depending on the complexity of the case, while the average duration of a contestation procedure is between 12 and 24 months. As a preventive measure, it is advisable to formalize any transfer with reservation of use in a contract, providing for a declared financial consideration, and to systematically document the non-tax motivations of asset transactions.

Preventive strategies

The best defense is prevention. When transferring property with a reservation of use, formalize the conditions of occupancy in a contract, and systematically provide for a declared financial consideration. Rigorously document the non-tax motives behind your asset transactions, and keep all supporting documents.

Consult a tax lawyer before any asset structuring involving dismemberment of ownership or donation with usufruct reserve. This anticipation will enable you to avoid the pitfalls of article 751 CGI while legitimately optimizing your asset transfer. Drawing up an occupancy agreement specifying the terms of use and financial consideration is an essential safeguard.

Given the complexity of this tax presumption and the considerable financial stakes it generates, the assistance of a tax law professional is a protective investment for you and your heirs. Anticipating and documenting the structuring of your estate transfers is the best guarantee against the application of article 751 CGI.