The transfer of wealth and the sale of assets are major operations in the management of your estate. Pre-sale donation represents a strategy foroptimizing wealth management, enabling you to significantly reduce the tax burden associated with the sale of assets. This legal and fiscal technique requires in-depth expertise if it is to be implemented correctly and avoid the risk of requalification by the tax authorities.

Are you planning to sell securities or real estate? Understanding the mechanisms of pre-sale donations will enable you to anticipate the tax consequences and optimize your asset transfer. This approach combines civil law and tax law to maximize the effectiveness of your strategy, whether you’re transferring a family business or disposing of major shareholdings.

What is the Donation Before Transfer?

A donation before sale consists in transferring assets (company shares, corporate shares, real estate) to your heirs free of charge before they are sold, with the donee then selling the assets received. This double operation – donation subject to transfer tax, then sale by the beneficiary – enables you to transfer the tax burden of the capital gain from the donor to the donee, thereby taking advantage of his or her more favorable tax situation or splitting the capital gain between several beneficiaries. Let’s take a concrete example: you own shares valued at €200,000 that you acquired for €50,000, representing an unrealised capital gain of €150,000. If you sell them directly, you will be taxed on 30% of this capital gain, i.e. €45,000. On the other hand, if you give these shares to your two children, who then sell them, the capital gain can be split between them, potentially enabling them to benefit from lower tax brackets and multiple allowances, thus reducing the overall tax burden of the operation.

The Legal and Fiscal Framework for Pre-Transfer Donations

Applicable tax principles

The tax authorities strictly control this practice to prevent abuse. The General Tax Code sets out a number of anti-abuse measures, including abuse of tax law. You need to demonstrate that your transaction has a purpose other than purely tax-related, and is part of an optimal tax strategy.

The donation value generally corresponds to the market value of the assets on the day of transfer. Donation tax is calculated according to the progressive scale applicable to gratuitous transfers. The donee inherits the donor’s acquisition value for the purposes of calculating future capital gains.

Capital gains tax will be payable by the donee on the subsequent sale. The time between donation and sale is a crucial factor for the tax authorities. This structuring avoids problems of double taxation, while optimizing the overall tax burden.

The risk of tax requalification

The tax authorities may requalify the transaction if they consider that the donation and sale constitute an artificial arrangement. Assessment criteria include the time lapse between the two transactions, the existence of a disposal project prior to the donation, and the donor’s actual liberal intention.

Case law has established several guiding principles. Too short a period between donation and transfer is an unfavorable indicator. The existence of negotiations prior to the donation may also lead to requalification. You must be able to justify an intention to transfer that is distinct from the proposed sale.

In the event of requalification, the tax consequences are severe: taxation of the capital gain in the hands of the original donor, surcharges and interest on arrears. To ensure the legal security of the transaction, you need a lawyer specializing in estate taxation.

Applicable tax principles

The tax authorities strictly control this practice to prevent abuse. The General Tax Code sets out a number of anti-abuse measures, including abuse of tax law. You must demonstrate that your transaction has a purpose other than purely tax-related. The total tax burden of the operation will depend on several parameters: gift tax, then capital gains tax on the sale.

The value used for the donation corresponds to the value of the property at the time of transmission. This value will be subject to gift tax according to the progressive scale applicable to direct lines: 5% up to €8,072, 10% from €8,072 to €12,109, 15% from €12,109 to €15,932, 20% from €15,932 to €552,324, 30% from €552,324 to €902,838, 40% from €902,838 to €1,805,677, and 45% thereafter. You benefit from an allowance of €100,000 per parent and per child, renewable every 15 years. To calculate future capital gains, the donee uses the donor’s original purchase price: the capital gain will therefore be equal to the sale price minus the donor’s historical purchase price.

Capital gains tax will be payable by the donee on subsequent disposal. For company shares, the flat tax of 30% applies (12.8% income tax + 17.2% social security contributions), unless the progressive scale is chosen. The length of time between the gift and the sale is a crucial factor for the tax authorities: too short a period can lead to the whole transaction being reclassified.

The risk of tax requalification

The tax authorities may requalify the transaction if they consider that the donation and sale constitute an artificial arrangement designed solely to evade tax. To assess the validity of the transaction, the tax authorities rely on a number of indicators: the period of time between the two transactions, the existence of prior negotiations or commitments, the economic coherence of the transfer, and the donor’s true liberal intent. No single criterion is decisive, but their accumulation can lead to a reclassification.

The jurisprudence of the Conseil d’Etat has established essential guiding principles. A delay of less than 3-6 months between donation and transfer is generally considered suspicious by the tax authorities. Jurisprudence recommends waiting at least 6 months, ideally 1 year or more, to secure the transaction. For example, if a promise to sell is signed before the donation, requalification is almost certain. The existence of advanced negotiations or an identified buyer prior to the donation is also a major disadvantage. You must be able to demonstrate that the donee had complete freedom to decide on the subsequent sale.

In the event of requalification, the tax consequences are particularly severe: taxation of the capital gain in the hands of the original donor, surcharges of 40% in the event of deliberate failure to comply (or 80% if the tax authorities deem this to be an abuse of rights), and late payment interest of 0.20% per month, i.e. 2.4% per annum in 2024. These penalties are added to the main tax liability, and can amount to considerable sums. To ensure the legal security of the transaction, it is essential to call on the services of a lawyer specializing in asset taxation, right from the project design phase.

Optimization strategies and alternatives

Secure donation before sale

To secure your operation and minimize the risk of tax requalification, several essential precautions must be scrupulously observed:

• Minimum period between donation and sale: Respect a minimum period of 6 months, ideally 1 year or more, between the donation and the sale. This period demonstrates the absence of artificial arrangements.
• Detailed notarial deed: Document your liberal intention with a notarial deed explicitly stating your financial and family motivations.
• No prior negotiation: Avoid any negotiation, promise of sale or tacit agreement prior to the donation. The donee must have complete freedom to decide whether and under what conditions to sell.
• Effective exercise of rights: The donee must exercise the prerogatives attached to the assets received (participation in meetings, voting, receipt of dividends on securities).

Documents to be kept in a safe place:

• The deed of gift with detailed reasons for the donation
• Declaration of donation and payment of transfer duties
• Proof of actual exercise of rights by the donee (convocations, minutes of meetings)
• Any correspondence demonstrating the absence of prior consultation
• Proof of the value of the assets at the time of the donation

This documentation is your best defence in the event of a subsequent tax audit.

Alternative Optimization Systems

While gifts prior to sale may present risks of requalification, other mechanisms offer secure alternatives. The “apport-cession” deferred capital gains tax on the transfer of shares to a holding company, subject to compliance with strict reinvestment conditions. The Dutreil pact offers a 75% exemption from gift tax for transfers of family businesses, subject to a minimum 4-year holding period. Lastly,article 150-0 B ter of the French General Tax Code also provides for tax deferral mechanisms for certain contributions of securities, requiring rigorous monitoring over time.

Practical implementation and support

The implementation of a donation before transfer requires a methodical approach in three main stages: (1) precise valuation of the assets by an independent expert, (2) drafting of a notarized deed of gift clearly documenting your liberal intention (the cost varying according to the value of the assets transferred), and (3) imperative observance of a minimum period of 6 to 12 months before any transfer by the donee. During this period, the beneficiary must fully exercise the rights attached to the assets received (participation in meetings for securities, effective management for real estate). This rigorous planning, ideally accompanied by tax advice from the outset of the project, helps to secure the transaction and minimize the risk of requalification by the tax authorities.

Production stages

The implementation of a donation before transfer follows a structured process. Start with a comprehensive asset analysis, identifying your transfer objectives and tax constraints. Assess the precise value of the assets concerned by means of an independent appraisal.

Draw up the deed of gift with the assistance of a notary and a tax advisor. This deed must reflect your genuine liberal intention and mention the financial reasons for the transfer. Pay the gift tax according to the scale applicable to your family situation.

Respect a reasonable period of time before any transfer by the donee. During this period, the donee must exercise the prerogatives attached to the assets received. In the case of company shares, this means attending meetings and exercising voting rights.

The importance of legal support

The complexity of tax rules and the risks of requalification call for professional support. A tax lawyer analyzes your personal situation and identifies specific risks. He structures the transaction to maximize legal certainty while optimizing tax efficiency.

In the event of a tax audit, your advisor will assist you in your dealings with the tax authorities. He will put together your defense file and argue the validity of your set-up. Legal expertise becomes a decisive factor in avoiding tax reassessments.

Anticipation remains the best strategy when it comes to transferring assets. Consult a specialist well in advance of your transfer plans. This approach enables you to explore all the options available and choose the solution best suited to your wealth and family objectives.

Secure Your Estate Transfer Strategy

To ensure the success of a pre-sale donation, three conditions are essential: ensure that there is a minimum period of 6 to 12 months between the two transactions, rigorously document your liberal intention in the notarial deed, and avoid any promises to sell or negotiations prior to the donation. In addition to this technique, other schemes such as the “apport-cession” or the “pacte Dutreil” may be more appropriate, depending on your family situation and the nature of your assets. Anticipation and support from a lawyer specializing in wealth taxation will enable you to identify the optimum strategy while minimizing the risks of tax requalification.