What taxes are payable if I gift my French property to my son?

My son and I both live in the UK. I own a holiday home in Brittany which my son loves. I’m getting a little older and I’d like to give the holiday home to him. I have spoken with my notaire about the French taxes and costs which I will need to pay, but are there any UK taxes which I should be aware of?

Charlotte Macdonald of Stone King explains: If you are a UK resident then you are liable to pay capital gains tax (CGT) on the disposal of your worldwide assets. Under UK tax law, if you give away your holiday home, you will be making a ‘deemed disposal’. This means if your holiday home has risen in value in the time since you acquired it, you may have to pay CGT. For example, if you bought your holiday home for €150,000 and at the time you give it away it is worth €200,000, then you may have to pay CGT on the €50,000 gain. The actual amount payable to HMRC will be dependant on the costs incurred in the purchase and gifting, whether you have made any other CGT disposals in this tax year and your tax bracket.

If you are UK domiciled then you should also consider UK inheritance tax (IHT). We don’t have a gift tax as such in the UK, but if you die within seven years of giving your holiday home away, the value of the holiday home (even though it is located in France) is likely to be counted in your estate’s IHT calculation – meaning that your estate may need to pay more IHT on your death.

If you intend to continue using your holiday home after you give it to your son, you should be aware that HMRC may consider that you have not really given it away (this is known as making a ‘gift with reservation of benefit”), so there is the possibility that on your death HMRC may continue to count the holiday home as an asset belonging to you and charge IHT on its value – even if seven years have passed since you gave it to your son.

You can avoid this by paying your son market rent for the time that you occupy the holiday home, however, your son will then need to declare this rental income in both France and the UK.

Before making the gift, you should also discuss stamp duty land tax (SDLT) with your son. This is a tax charged in the UK when buying a home, and is calculated as a percentage of the purchase price. It is important because if your son wishes to buy a home in the UK, he will be classed as buying a second home (given that he will own the holiday home in France) and will have to pay at least an additional 3% of SDLT, compared with the position if he only had one home.

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