Charlotte Macdonald is a Senior Associate Solicitor (consultant) in Stone King’s international and cross-border team.
Charlotte answers legal and practical questions that are often asked by her clients in relation to France; whether that be buying or selling property in France, inheritance law, or how inheritance and capital gains tax are treated between the UK and France.
Capital Gains Tax (‘CGT), both in the UK and in France, is, broadly speaking, charged when you sell an asset for a gain.
The rules relating to CGT are numerous and differ depending on whether we are talking about French CGT or UK CGT.
In both countries, you don’t pay CGT if the asset in question is your main home, but if the asset is a holiday home, which you sell for a profit, then CGT may be chargeable.
If you are a UK resident but selling a holiday home in France, you may have to pay CGT in both France and the UK (please see our other articles for more information about this).
Giving your French property away
Under French tax law, if you give your French property away, you will not have to pay French CGT, but you may need to pay French gift tax depending on the value of your property and who you are giving it to.
However, if you are a UK resident, then you should be aware that if you give your French property away, not only will there be French gift tax considerations, but there will also be UK inheritance tax considerations, and you may have to pay UK CGT.
This is because, in the UK, any ‘disposal’ of an asset can trigger CGT. The term ‘disposal’ not only includes selling a property for a profit but also includes gifting a property which has gone up in value. Whether or not CGT will be chargeable will depend on the value of the property at its date of acquisition and the value of the property on the date that you give it away. The disposal value used should be that of an open market value – so for tax purposes, it is strongly advised that you have the property valued before you give it away.
Inheritance vs gift and the CGT uplift
In both France and the UK, if, instead of giving your property away during your lifetime, you decide to give away your property on your death (usually by way of your Will), your executors/beneficiaries will need to consider whether any inheritance tax is payable.
However, they will not need to consider CGT. This is due to the ‘CGT Uplift’. Following a death, the property in question, for tax purposes, is given a new value – that value is the open market value at the date of death.
So, if your executors or beneficiaries later sell your property, they will only pay CGT at that time if the property has risen in value from the date of death value.
This means that generally, your executors/beneficiaries do not have to pay inheritance tax and CGT.
Is it better to give my property away now or wait to leave it under my Will?
There is no correct answer here because it will very much depend on your own particular circumstances and what your overall goals are. But if you are a UK resident with a French holiday home, it is very important to consider both the UK and French tax consequences of giving your French property away.
This is because what may make sense from a French tax planning point of view, such as an outright gift or a partial gift (splitting your property into usufruit/nue propriété) may have negative tax consequences in the UK – especially CGT.
Therefore, if your main goal of giving your French property away is to create a tax saving for your beneficiaries, it is recommended that you take both French and UK tax advice, as it may end up being better to simply leave your French property under your Will.
For more information about the cross border treatment of your civil partnership, wills or inheritance tax please contact the international and cross-border team at Stone King LLP – Charlotte Macdonald, Dan Harris, Raquel Ugalde, Emma Seaton, Bryony Anning or Graeme Beattie, either by calling +44(0)1225 337599 or by emailing [email protected].
Article written by Charlotte Macdonald and trainee solicitor Bryony Anning.
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