Transgenerational French Estate Planning

When it comes to French inheritance taxes, French property owners forget too often that they can limit the fiscal cost of the transmission of their French assets over their loved ones by careful estate planning.

Since 2006, a donor can gratify in a shared gift descendants of different degrees, for example his/her children and grandchildren.

With the agreement of the children, it is possible to transmit a French property to the grandchildren or to transmit the life interest of the property to the children and the bare ownership to the grandchildren.

This operation of transmitting a property or other assets over two generations will increase the number of Inheritance tax allowances applicable for the calculation of the gift taxes.

Indeed, a parent can give to each of his/her children €100,000.00 and €31,865.00 to his/her grandchildren tax free.

For example, a couple with 2 children and 4 grandchildren can transmit tax free €654,920.00: (€100,000 X 2 children) + (€31,865 X 4 grandchildren) X 2 parents.

In the case of French property, this estate planning operation can be advantageous if the property was purchased by a suitable holding company such as an SCI (“Société Civile immobilière”). The SCI enables its members to transfer gradually their shares to their children or grandchildren. The French SCI is commonly used by families as a vehicle to organise the transmission of assets between members of a family. An additional benefit will be that each parent can transfer every 15 years some of his/her shares to his/her children and to his/her grandchildren with the same tax allowances mentioned above.

Furthermore because of the difficulty to sell the shares of an SCI to another person or a shareholder of an SCI, the shares of an SCI can be devalued by 10-20% justified by the insertion of an approval clause (“clause d’agrément”) in the “statuts” of the company. The value of the shares would be 10-20 % less than the value of the property reported in the number of shares.

Please note that this transgenerational inter vivos gift may also involve assets which have already been donated to children. It is then possible for the children to pass their assets to their own children in favourable tax conditions.

For more information on “Transgenerational French Estate Planning”, please contact Loic Raboteau via email at loicr@bandmlaw.co.uk or tel on +44 (0) 20 7356 0833.