Taxation of Gifts and Inheritances

Passing on wealth through gifts and inheritance is an act of great personal and financial importance. It involves passing the baton from one generation to the next, but also raises a number of tax-related issues. How are they taxed? What allowances and rates apply? Let’s take a closer look at the issues involved in gift and inheritance taxation.

What is gift and inheritance tax?

Gift and inheritance tax refers to the set of tax rules that apply when an individual passes on part of his or her assets to another person, either during his or her lifetime or at death. This transfer may be subject to gift or inheritance taxes, which vary according to the degree of kinship between the donor and the beneficiary, the value of the assets transferred, and any exemptions or allowances that may apply.

Inheritance tax principles

When a person dies, his or her heirs are generally required to pay inheritance tax in order to receive the assets bequeathed to them. Deductions are based on family relationship, and inheritance tax rates are progressive. As a result, the larger the inherited share and the more distant the relationship, the greater the duties payable.

Donations: a way to optimize your tax situation

Making a donation can be a strategic way of reducing future inheritance tax. Tools such as shared gifts and gifts by hand enable you to pass on assets during your lifetime, while benefiting from tax allowances that are renewable every 15 years. This gesture can sometimes preserve family harmony by settling the distribution of certain assets in advance.

The different types of donation

There are various types of donation: simple, manual, trans-generational or property dismemberment. Each form meets different needs and offers its own tax benefits. For example, giving the bare ownership of one’s assets while retaining the usufruct reduces the gift tax because the taxable value is lower.

Frequently asked questions

Here is a list of frequently asked questions about the taxation of gifts and inheritance.

What is the applicable allowance between parents and children?

Between parents and children, a personal allowance of 100,000 euros applies every 15 years. This means that a sum of up to 100,000 euros can be given without being subject to gift tax.

Are gifts always more advantageous than inheritances?

Donations are an advantageous option for preparing an inheritance, and can reduce the amount of tax payable. However, the benefits depend on each family and asset situation. It is advisable to consult a professional for a suitable strategy, such as a wealth tax lawyer.

What goods can be donated?

All types of property can be the subject of a donation: real estate, money, shares, works of art… It is important to note that the value of these assets will be based on their appraisal at the time of donation.

Are there any special schemes for small businesses?

Yes, under certain conditions, the transfer of a family business can benefit from partial exemption from gift or inheritance tax. Certain Dutreil pacts, for example, make it possible to pass on the business while maintaining its economic activity.

Does the taxation of gifts and inheritance differ from region to region?

While most gift and inheritance tax rules are set at national level, there are specific rules for the French Overseas Departments (DOM) and the tax-free zone. We therefore need to take a close look at the rules that apply depending on geographical location.

This article provides a general overview of the taxation of gifts and inheritance. However, every situation is unique, and often requires the support of an expert, such as a tax lawyer, with up-to-date knowledge of tax legislation to advise you on the right course of action.