TAX: THE TRAP OF NON-RESIDENT INHERITANCES AND GIFTS

Article 750 ter of the French General Tax Code : the tax trap for non-residents

Réunion de travail entre avocats et clients autour d'une table dans une salle de réunion moderne du cabinet HarlingtonOften overlooked (and sometimes unknown) by expatriates, article 750 ter of the French General Tax Code has a painful way of reminding of its existence those who neglect it. That provision, of formidable effectiveness, allows the tax authorities to tax gifts and inheritances even where the donor is no longer a tax resident and even where he has, at the same time, fully complied with all his reporting and guarantee obligations under the exit tax, the said article also being capable of applying even where the taxpayer has already duly obtained the discharge of that tax.

In other words, the taxpayer may legitimately wonder: “but when am I finally and definitively released from my obligations towards the French tax authorities? “

Read on to learn more about this subject and about what awaits you if you are in this situation.

With or without a double taxation treaty?

As a reminder, in the absence of a tax treaty intended to eliminate double taxation in respect of gift duties, reference must be made to the provisions of article 750 ter of the French General Tax Code (CGI), which distinguishes between the cases of taxation according to the tax domicile of the donor and of the donee.

Where a tax treaty applies, reference must be made to the applicable provisions in order to ascertain the right to tax. The States that have concluded a treaty with France in respect of gift duties are the following:

  • Germany (Convention of 12 October 2006);
  • Austria (Convention of 26 March 1993);
  • The United States (Convention of 24 November 1978);
  • Guinea (Convention of 15 February 1999);
  • Italy (Convention of 20 December 1990);
  • New Caledonia (Convention of 31 March and 5 May 1983);
  • Saint Pierre and Miquelon (Convention of 30 May 1998);
  • Sweden (Convention of 8 June 1994)
In all other cases, you will be dealing with article 750 ter of the CGI.
What should be done if the gift was made abroad and the French tax authorities were not made aware of it?
A distinction must be drawn between a gift recorded by a notary abroad and a gift made by manual delivery (don manuel).
1. The gift was recorded by a notary abroad by way of a notarial deed
Two situations may arise:

Is a gift made abroad enforceable in France ?

Enforceability of a gift made abroad in the form of an authentic instrument
 
A foreign authentic instrument is presumed valid within the French legal order both as to its content and as to its date, which means that the tax authorities cannot simply rely on the absence of registration of the gift in France in order to deny its date (BOI-ENR-DG-20-10 n°190). Even in the absence of registration in France, the limitation period therefore begins to run from the date of the authentic instrument executed abroad. The date of the foreign authentic instrument will also determine whether or not the rappel fiscal, the aggregation of earlier gifts, applies.
 

The main scenarios

 Ø  The gift was made by a non-resident to a French tax resident
 
Where the donor is a non-resident, the first step is to consult a local notary in order to determine the rules on gift duties applicable in the State of residence.
 
However, where the donee is a French tax resident, he must be subject to French transfer duties on that gift, whether the assets are located in France or outside France. The donee is therefore required to disclose the existence of that gift to the French tax authorities.
 
The question therefore arises whether he must register the foreign deed of gift or file a declaration of manual gift (Cerfa form no. 2735).
 
Registration of the foreign deed of gift in France is mandatory only where the gift concerns real property (Art. 635 of the French General Tax Code (CGI)).
 
Otherwise, if the gift does not relate to real property, it will simply be necessary to file a declaration of manual gift with the competent registration office, which will inform you of the amount of duties payable in respect of that gift. In that case, it is not necessary to register the foreign deed of gift.
 
The declaration of manual gift must then be filed within one month of the date on which the donee disclosed the gift to the tax authorities.
 
Caution :
 

  • Duties paid abroad: Do not forget to credit, where applicable, the amount of duties paid abroad against the amount of duties due in France (784 A of the CGI).

Ø  The gift was made by a non-resident to a non-resident
 
Where the gift was made by notarial deed abroad by a non-resident to another non-resident and relates to:
 

  • Assets located in France, it is subject to French transfer duties and must be declared by filing form no. 2735 ;

  • Assets located outside France, it falls outside the scope of French transfer duties.

Nevertheless, if the donor returns to France after the gift, or if his succession is opened in France, may that gift of assets located outside France be caught by French tax even though it escaped it on the date of the gift ?

The question is of particular interest with regard to the tax claw-back (rappel fiscal) or where the donor dies in France and a succession opens in France.
 
The tax claw-back, provided for in article 784 of the CGI and applicable to the succession, consists in reinstating, for the purposes of calculating the allowances and the rate bands applicable to the succession or gift, all gifts previously made, with the exception of those made more than 15 years ago.
 
Nevertheless, we take the view that, in so far as the gift was not subject to gratuitous transfer duties on the date on which it was made, it should not be taken into account for the purposes of the tax claw-back.
 
Accordingly, a gift with no connection whatsoever with France on the date it is made can never be subject to transfer duties in France, and this even in the event of a return to France and of death there after the gift.
 
2.      The gift was made abroad in the form of a manual gift without a deed
 
Under article 757 of the CGI, a manual gift is subject to gratuitous transfer duties only where: 
 

  • It is declared in a deed by the donee ;

  • It is the subject of a judicial acknowledgement ; 

  • It is spontaneously disclosed by the donee to the French tax authorities.

Where no deed or judicial acknowledgement has been drawn up, the tax authorities thus consider that the date of the chargeable event for the taxation of manual gifts is not the date on which the gift was made but the date of its disclosure.  

Ø  If the gift was made by a non-resident to a French tax resident

The manual gift is then subject to French transfer duties and must be declared by filing form no. 2735 within one month of the disclosure.

Ø  If the gift was made by a non-resident to a non-resident

The manual gift is then not subject to French transfer duties and need not be declared.
 
Why is it preferable to declare a manual gift made abroad ?
 

If a manual gift was made in a foreign context but, years later, a further transfer takes place between the same persons in a French tax context (succession or deed of gift), the declaration of all prior gifts for the purposes of the tax claw-back rule will set the chargeable event of the earlier manual gift at the date of the new transfer. 

In practice, the opening of a succession in France or the making of a further gift by a deed subject to gratuitous transfer duties between the same persons will fix, as at the date of the new transfer : 

  • The value of the assets covered by the earlier manual gift ;

  • The tax and territoriality rules applicable to the manual gift under the conditions of article 750 ter of the CGI.

Practical example :
 
On 1 January 2000, Mr PICSOU, a Belgian tax resident, made to his son, also a Belgian tax resident, a manual gift of the sum of 500.000 euros, which was not registered. At that date, the manual gift therefore fell outside the scope of French tax.
 
Mr PICSOU and his son Loulou moved to France and have been regarded as French tax residents since 1 January 2008.
 
On 1 April 2025, Mr PICSOU makes a gift of a villa located in France to his son. When the deed of gift is executed, the French notary of Mr PICSOU asks him about earlier gifts for the purposes of the tax claw-back. Applying the claw-back rule to the earlier manual gift of Mr PICSOU will then result in its disclosure on 1 April 2025 and in its taxation to gratuitous transfer duties under article 750 ter of the CGI, in so far as the donor and the donee are regarded as French tax residents at that date.
 
Mr PICSOU will therefore have to pay the gift duties on the earlier manual gift of 500.000 euros, while, for the purposes of calculating the transfer duties relating to the gift of his villa, Mr PICSOU will receive no allowance, in so far as the earlier gift cannot be regarded as having been made more than 15 years ago, given that the disclosure of the manual gift set its chargeable event at 1 April 2025.
 

Such a tax burden arising from the claw-back of earlier manual gifts can nevertheless be avoided by giving the gift a certain date when it is made abroad, by declaring it to the French tax authorities, so as to crystallise the chargeable event of the taxation before the transaction comes within the scope of French tax.

In order to avoid the risk of taxation in France of undisclosed manual gifts made in a strictly foreign context, taxpayers domiciled outside France who may come to settle there are advised to file manual gift declaration form no. 2735 with the non-residents tax office.
 

In conclusion :

A gift, even one made abroad, may have consequences in terms of reporting obligations and also of French transfer duties, and that after the gift has been made.
 

In order to identify the tax risk, it is therefore necessary to analyse all the applicable tax rules and the impact of the gifts made for the future, in a context where the mobility of individuals is no longer the exception but the norm.

We can assist you in carrying out your gift made abroad in order to identify the tax consequences with regard to French transfer duties and to complete the formalities.

Texan proverb: “There are only two things on earth that cannot be avoided: death and taxes“.

Frequently asked questions on inheritance and gifts involving non-residents

Do non-residents pay inheritance tax in France?

Yes, in many cases. Article 750 ter of the CGI provides for taxation in France as soon as the deceased, the Beneficiary or the assets have a connection with France. A non-resident may therefore be taxed on assets located outside France.

What is the trap of article 750 ter of the CGI?

That article extends French taxation to heirs or donees domiciled in France for at least six of the last ten years, even on foreign assets. It is a frequent trap for expatriate families who are poorly informed.

Can a tax treaty avoid double taxation on inheritance?

Yes, where one exists. France has signed only a limited number of treaties on inheritance and gifts. In their absence, a mechanism for crediting the foreign tax exists, but it does not always entirely neutralise double taxation.

Does the exit tax apply to gifts?

The exit tax targets unrealised capital gains upon the transfer of tax domicile. A gift made after departure may, subject to conditions, give rise to relief from the exit tax, but the regime is technical and requires prior analysis.

How can an international transmission be secured?

Tax residence, the applicable treaties, the location of the assets and the timing of the gifts must be analysed in advance. Legal support makes it possible to avoid the traps of article 750 ter and to optimise the international transmission of the estate.

Further reading

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