Large amounts of inheritance tax being payable when you leave your will can be avoided. Forward planning for when you pass on your real estate assets will maximise your chances of protecting both your children and what you are leaving them.
Making a gift
This is undoubtedly the easiest solution to adopt in legal terms. Since 2012, each child benefits from a tax allowance of €200,000 (€100,000 per parent), renewable every fifteen years. That means that if both parents give two children a house with a value of €400,000, the tax authorities will not require them to pay property transfer tax. This represents big savings If you own real estate with significant value and a real advantage providing you make arrangements early enough to transfer your assets in stages.
The only problem with gifts is that on the death of the person who makes the gift, the assets being passed on are revalued when the notary checks that each heir has received their obligatory share.
A gift inter vivos may be a wiser choice in that case. Drawn up by a notary, the deed of gift is a single deed which provides for an asset to be divided up between all the heirs. The tax advantages are the same, but the assets are not revalued at the time of succession. The value of the assets is fixed on the day the gift is made. This is the preferred solution, seen as less unpredictable, when there are several children.
You can also give an asset away while retaining the usufruct. As usufructuary, you can live in the property or rent it out. Children, the bare owners, are responsible for the upkeep of the property which cannot be sold without their agreement. On the death of the person who made the gift, the children become fully-fledged owners of the property, with no inheritance tax to pay.
Setting up an “SCI” Property Investment Partnership
Many notaries recommend you set up an “SCI” Property Investment Partnership to transfer property to your children. This solution is particularly suitable for households with a sizeable estate. The assets transferred are represented within the SCI as company shares. Shares are often easier to divide up than a house. Transferred to the children via a gift, they benefit from the same tax advantages as above and can, therefore, be transferred without tax, within the legal tax allowance limit.
Unlike gifts, which involve management in accordance with regulations applying to joint ownership, if the asset is divided up between several children, under an SCI, one partner cannot initiate the sale of the asset. A family’s estate is therefore better protected and in the event of dispute, the dissatisfied partner can simply get rid of their shares.
NB: It costs between €1,500 and €2,000 to set up an SCI, including notary fees.
Buying a property in the name of your child(ren)
Finally, you can elect to buy a property and put it directly in the name of your children with the aim of passing it on to them. If they are under 18, they will become owners when they turn 18. They will then have to take on management of the asset, especially if they decide to rent it out. This option should not, therefore, be taken lightly because along with the property you transfer a significant amount of responsibility. An intervention by the “juge des tutelles” (judge supervising a guardianship) can prove necessary in certain cases to avoid the transfer jeopardising the financial situation of the child when (s)he turns 18.