Selling to a relative below value in France: the risks

What the law allows: a freely set price

The sale price “must be determined and stated by the parties” (Civil Code, art. 1591) (our translation). Civil law only protects the seller against a considerable loss: if they were “wronged by more than seven twelfths” of the price of a property, they can apply for rescision (rescission) of the sale (Civil Code, art. 1674), i.e. if they received less than five twelfths of the property’s value. This action must be brought within 2 years of the sale (art. 1676).

A price moderately below the market is therefore not illegal in itself. The problem arises when the gap is so wide that the sale looks like a present.

The tax risk: price adjustment and disguised gift

Price adjustment. For droits d’enregistrement (registration duties) and taxe de publicité foncière (land registration tax), the tax authorities can adjust the price of a property “where that price or that valuation appears lower than the real market value of the property transferred” (LPF, art. L17). Duties are then calculated on that real value.

Disguised gift. If the sale is fictitious, the tax authorities can set the deed aside on the grounds of abuse of law: they are entitled to disregard deeds that are “fictitious in nature” or motivated solely by the aim of evading tax (LPF, art. L64). The sale is then reclassified as a gift, subject to gift duties.

Surcharges (CGI, art. 1729):

Service-public.gouv.fr sets out the same logic for sales of SCI shares: a manifestly fictitious or derisory price can lead to the sale being declared void or reclassified as a disguised gift, and the tax authorities can check the price between members of the same family.

How long can the tax authorities act? For registration duties, the reassessment period runs until the end of the 3rd year after the deed was registered, but only if the deed sufficiently disclosed that duties were payable without any further investigation (LPF, art. L180). Otherwise, the general period is 6 years (LPF, art. L186).

Making a real gift rather than a sham sale

A gift made openly qualifies for allowances. Between a parent and a child, the allowance is €100,000, applying to gifts from the same parent to the same child over a 15-year period; each child benefits from it for gifts from each of their two parents (service-public.gouv.fr). Official example: a gift of €200,000 with a €100,000 allowance is taxed on €100,000 only.

If the aim is to favour a child, a gift declared as such is safer than a sale at a low price. See the guide donation d’un logement aux enfants (gifting a home to your children).

Rapport to the estate and reduction

Even without a tax audit, the advantage given to a child resurfaces on the parent’s death.

The rapport (bringing gifts back into the estate). Every heir taking part in the estate “must bring back to their co-heirs everything they have received from the deceased, by gifts inter vivos, directly or indirectly”, unless the gift was made to them expressly outside their share of the estate (Civil Code, art. 843). The rapport is owed on the value of the gifted property at the time of the division, based on its condition at the time of the gift (art. 860): if the home has gained in value, the advantage to be brought back grows with it.

Reduction. The héritiers réservataires (forced heirs) must receive a minimum share; you can only give away the quotité disponible freely, i.e. half of your estate with one child, a third with two, a quarter with three or more (service-public.gouv.fr). Beyond that, the other heirs can bring an action en réduction (action for reduction) when the estate is settled.

Selling to a child with the usufruct reserved. Where the property is transferred to a direct-line heir in return for a life annuity, à fonds perdu (with no capital returned) or with the usufruct reserved, its full-ownership value is charged against the quotité disponible and any excess is subject to reduction, except as regards the other direct-line heirs who consented to the transfer (Civil Code, art. 918). The other children who consented to the sale can therefore no longer ask for this charge or this reduction. See also the guide succession et immobilier (inheritance and property).

Which professional to consult

The notaire (notary) drafts the deed, assesses the gap between the price and the property’s value and can suggest a gift or a sale combined with a gift, declared as such. The agent immobilier (estate agent) helps document the home’s market value, the benchmark for assessing the gap with the agreed price.