What Is a Real Estate Gift?
A gift is a legal act through which one person (the donor) transfers ownership of an asset to another person (the donee) during their lifetime and without receiving anything in return.
One essential point: a gift is irrevocable. Once the deed has been signed, the donor cannot change their mind, even in the event of family disagreements or subsequent financial needs. This is a fundamental difference from a will, which may be amended until death.
When the gift concerns real estate, the involvement of a notary is mandatory. The notary drafts the deed and records it with the Land Registry. At the end of the process, the donee receives an authentic deed allowing them to obtain a title deed in their name.
A real estate gift is often part of an estate planning strategy. It can complement or even replace a transfer of assets as part of an inheritance.
Gift in Full Ownership or Bare Ownership: What Is the Difference?
The donor has two main options.
Gift in Full Ownership
This is the simplest form of gift. The donor transfers all rights to the property: the donee becomes the full owner and may live in it, rent it out, or sell it freely.
This solution is appropriate when the donor no longer uses the property and wishes to transfer it permanently.
Gift with Split Ownership (Usufruct and Bare Ownership)
This arrangement is based on separating ownership rights from usage rights. The donor transfers the “bare ownership” of the property while retaining the “usufruct”, meaning the right to occupy the property or receive rental income from it.
Upon the donor’s death, the usufruct automatically expires and the donee acquires full ownership of the property without having to pay additional transfer duties.
Is There a Tax Advantage to Split Ownership Compared with Full Ownership?
Yes, and the tax advantage is significant. Gift tax is calculated only on the value of the bare ownership, which is determined according to a legal scale based on the donor’s age.
The younger the donor is at the time of the gift, the lower the value of the bare ownership and therefore the lower the gift tax.
For example, a 55-year-old donor is considered, for tax purposes, to transfer only 50% of the property’s value.
What Is a Gift Partition (Donation-Partage)?
This is a third option that can be used alongside a gift in full ownership or a split-ownership gift. It distributes one or more assets among several heirs while fixing their value on the date of the deed.
This differs from a standard gift, where the assets are revalued at the date of death for inheritance purposes.
The main advantage is preventing future imbalances between heirs when one asset appreciates significantly while another does not.
How Much Does a Real Estate Gift Cost?
The total cost of a real estate gift consists of three elements: gift tax, notary fees, and land registration taxes.
As for gift tax (the largest cost component), the amount depends on three factors: the value of the property, the family relationship between the donor and the donee, and any gifts already made during the previous 15 years.
Property Valuation
Gift tax is calculated on the market value of the property on the date of the deed, meaning the price at which it could be sold on the open market.
The donor declares this value in the notarial deed. However, the tax authorities may review it and reassess the tax if they consider the property to be undervalued.
Tax Allowances
Each parent may transfer up to €100,000 per child without any gift tax being due. This allowance is renewed every 15 years.
In practical terms, a couple may transfer up to €200,000 to each child completely tax-free and then do so again 15 years later.
This renewal mechanism is precisely what makes early gifting so attractive: the earlier you start, the more tax-free transfer cycles you can benefit from over time.
The Tax Scale
Once the allowance has been applied and deducted, the remaining amount is subject to a progressive tax scale ranging from 5% to 45% for direct-line transfers.
A practical example: for a property valued at €300,000 given by a parent to a child, the €100,000 allowance reduces the taxable base to €200,000. Gift tax would amount to approximately €28,000.
This differs from a standard sale, which is subject to property transfer taxes. Gifts are governed by a separate tax regime (gratuitous transfer duties), which provides allowances unavailable in an ordinary sale.
What Happens If the Donee Sells the Property?
If the property is sold, any capital gain is taxable. It is calculated as the difference between the sale price and the value declared at the time of the gift.
The reference value is not the donor’s original purchase price but rather the value stated in the deed of gift.
The declared value therefore serves a dual purpose. It is used both to calculate gift tax when the gift is made and as the starting point for calculating capital gains tax upon resale:
- The higher the declared value, the higher the gift tax, but the lower the future taxable capital gain.
- Conversely, declaring a lower value reduces immediate gift tax but increases the taxable capital gain on resale and exposes the donor to a potential tax reassessment.
This balance should be carefully considered early on to secure the transaction from both a tax and estate-planning perspective.