Subject to its adoption, the draft bill provides for a temporary increase in the tax-free allowances for monetary gifts, combined with a reduced tax rate.
Firstly, there are plans to raise the tax-free allowance under Article 790 G of the French General Tax Code (Code général des impôts – CGI) for monetary gifts from the current €31,865 to €50,000. As before, this tax-free allowance can be combined with the allowance under Article 779 CGI, i.e. the €100,000 allowance for gifts and inheritances between relatives in the direct ascending and descending lines.
Secondly, it is proposed that a sum of up to €100,000 may be gifted at a tax rate of 6 per cent instead of the nearly 20 per cent normally payable. The beneficiary may be a child, but also a grandchild or great-grandchild.
The aim of the legislature is to provide an incentive for the swift and targeted transfer of savings from the older to the younger generation.
This also explains the specific nature of both measures: they are intended to apply only to cash gifts made between 1 January 2027 and 30 June 2027. Furthermore, the recipient must be under 50 years of age on the date of the transfer.
If the standard tax-free allowance of €100,000 under Article 779 of the CGI is combined with these special measures, a sum of €250,000 may be transferred between each parent and each child between 1 January and 30 June 2027. The gift tax payable on this amount is only €6,000, compared with €21,821 under the current legal framework.
The circumstances under which German nationals become liable for gift tax in France – generally in respect of gifts, but specifically in relation to the proposed legislation with regard to monetary gifts – when assets are transferred to them in this way by their parents living in Germany are currently governed by the interplay of three provisions.
Firstly, Section 2(1)(1), second sentence, of the German Inheritance and Gift Tax Act (ErbStG) contains the so-called ‘extended unlimited tax liability’, which stipulates that German nationals who have resided abroad for no longer than five years without having a domicile in Germany continue to be regarded as resident in Germany for the purposes of German inheritance and gift tax, and thus remain liable to tax in Germany on gifts or acquisitions by reason of death accruing to them during this period.
On the French side, Article 750 ter, 3° of the CGI provides for unlimited tax liability in respect of inheritance and gift tax for heirs and donees who have had their tax residence in France for at least six of the last ten years preceding the gift or the death.
The double taxation agreement concluded between the two states in the field of inheritance and gift tax stipulates, in turn, in Article 4(3), that nationals who hold the nationality of only one of the two states, but who are resident in both, shall be deemed to be resident for tax purposes only in the State of which they are a national, provided that they had the clear intention not to maintain their residence in the other State on a permanent basis and that, during the seven years immediately preceding the date of death or the gift, they were resident there for a total of less than five years.
In addition, there is a provision contained in the Protocol to the Double Taxation Agreement which guarantees Germany the aforementioned extended unlimited tax liability by stipulating that a German national who, at the time of death or the gift, has been residing outside the Federal Republic for no more than five years without having a domicile there, shall be deemed to remain tax resident in the Federal Republic.
Conclusion
In the case of gifts and inheritances involving German nationals who have been living in France for several years or who are settling there permanently, it must be assessed on a case-by-case basis whether or not they are already subject to unlimited inheritance or gift tax liability in France. In cases where it is likely that full tax liability in France will arise, it is advisable to transfer assets by way of a gift during the donor’s lifetime, before that point is reached.
Key points in brief
- The draft French Budget Act for 2027 aims to accelerate the transfer of cash assets to the next generation
- German nationals who are subject to unlimited gift tax liability in France are directly affected
