Gifting Money from the UK to French Resident Children

My family are British (living near London) and we have always enjoyed going on holiday in France. My daughter enjoyed these holidays so much that she ended up moving to France in 2019. She has now decided to make the move permanent. She is looking to buy a home in France. I would like to help her do this by giving her £200,000. Do I need to worry about any taxation issues?

Tax implications in the UK

As you are British, living in the UK, it is likely that you are UK domiciled for inheritance tax purposes. This means that any gifts you make during your lifetime may affect the amount you can leave tax-free upon your death.

In the UK it is our ‘estate’ (the value of our assets at the date of death, less any outstanding liabilities) which is subject to inheritance tax. We can leave up to £325,000 free of inheritance, the excess generally being taxed at 40%. There is also an additional £175,000 tax free allowance available in some circumstances when you leave your home to your children or remoter descendants.

There are a few beneficiaries that benefit from an inheritance tax exemption, meaning that they pay no inheritance tax – the most common ones are spouses and UK charities. Children are not exempt beneficiaries.

In the UK each person can give away £3,000 (the ‘annual exemption’ or ‘AE’) each year free of inheritance tax. If you have not used the previous year’s annual exemption this can be carried forward. Meaning you could give up to £6,000 away in some years before it affects your inheritance taxation position.

If you give away over this amount you will be making a ‘potentially exempt transfer’ or ‘PET’. If you survive this gift by 7 years it will pass free of tax, if you die within 7 years it will reduce the amount you can leave free of tax on your death, and in some circumstances could be taxed.

To give an example: you have not given away more than £3,000 in any of the previous 7 tax years. This year you give your daughter £200,000. The first £6,000 does not change the tax position as it represents this year and last year’s annual exemption. However the remaining £194,000 is going to reduce the amount that you can leave tax-free on your death for the next 7 years:

This means that if you die in the next 7 years you will only be able to leave £131,000 tax-free on your death instead of £325,000.

On the plus side there will be no immediate tax for your daughter to pay now, and if you survive 7 years the gift will have passed completely free of inheritance tax.

Tax implications in France

In contrast to the UK, in France the beneficiary pays tax on their inheritances and gifts. The amount that they pay is dependent on the amount that they receive and their relationship to you. Children receive the largest amounts free of tax (currently €100,000) and pay the lowest rates of inheritance tax.

Normally if a beneficiary is resident in France they will be required to pay French inheritance tax if they inherit over their tax free allowance.

There is a double taxation treaty (‘DTT’) between France and the UK. This will confirm that as you are UK domiciled and all your assets are located in the UK, on your death regardless of how much your daughter inherits from you, she would not need to pay any French inheritance tax.

However the DTT does not extend as far as gifts. This means that if you were to give a French resident a gift they would need to declare it to the French tax authorities and pay inheritance/gift tax if the amount is large enough.

There is an exception to the above, if the recipient of the gift has been French resident for less than 6 of the last 10 years, they will not need to pay French gift tax on non-French gifts given to them by a non-French resident.

In your daughter’s case, as she has only been French resident since 2019 (less than 6 of the previous 10 years), and you are UK resident, giving her cash from the UK, she will not have to pay French gift tax when she receives £200,000 from you.