Question: My wife and I are residents of France. We would like to gift an interest in our home to our children while retaining a right to live there. Would the gift be taxable in France or the UK either on the signing date or when we are both gone (and the children own the house absolutely)?
It would be possible to gift the bare ownership of your French property to your children during your lifetime and retain an usufruit interest (similar to a life interest). You would be entitled to the use of and income from the property but not the capital and any sale would need to be agreed upon by all parties.
The value of the bare ownership would depend on your ages at the time of the gift. For example, if you were aged 51-60, the bare ownership would be worth 50% of the value of the house. If you were aged 61-70, it would be worth 60%, and so on. There would be notaire's fees payable upfront for the transaction, which would be in the region of 2-3% of the value gifted.
There would be no liability to HMRC at the time of the gift, as the donors are residents in France, and the property is situated in France. Nor would there be any UK Capital Gains Tax ("CGT") liability, as the property is your home and thus main residence.
However, the gift would be assessed for French gift tax at the time of making the gift. The gift tax allowances (which are the same as the IHT allowances) are decided by reference to the relationship between the donor and done. As children are currently entitled to one tax-free allowance of 100,000€ per parent, each of your children would have a 200,000€ tax-free allowance available to them in relation to the property (presuming it is held in your joint names). Gift tax would be payable on any surplus at a rate of between 5% and 45%.
It should be noted that, whilst the UK/France Double Taxation Treaty allows for French and UK IHT to be credited against each other, there is no similar provision for the offsetting of CGT or gift tax. Whilst this should cause no problems in your circumstances, in other cases, the upfront costs of making a lifetime gift can outweigh the benefits.
On your respective deaths, your usufruit interest would lapse, and there would be no further IHT due while you are French resident.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.