Donation-transfer: transmitting and transferring without being subject to double taxation

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Donation-transfer is a legal and fiscal technique that makes it possible to optimize the transmission of assets when an asset is sold. It is based on a deliberately reversed chronology, consisting in donating a property before selling it, in order to avoid that the same value is subject successively to capital gains tax and then to transfer duties free of charge.

Long regarded with distrust, this strategy has gradually been secured by case law, which has accepted its principle since the donation is the result of a genuine divestiture and is not fictional in nature.

Donation-transfer is thus part of a logic of early transmission, while making it possible to neutralize or mitigate the tax burden associated with the transfer, provided that the rules and limits are strictly controlled.

The gift-transfer mechanism

In tax law, donations and transfers are subject to distinct logics. The donation is submitted transfer duties free of charge, while the transfer may result in the taxation of capital gains, corresponding to the difference between the sale price and the purchase price of the asset.

When the property is transmitted before it was sold, the donee is deemed to have acquired it for the value retained in the act of gift. This value becomes new fiscal cost price. If the transfer takes place shortly thereafter, with the sale price being close to this value, no taxable capital gain Significant has not been observed.

This mechanism thus makes it possible to avoid double taxation of the same value. In the absence of a prior donation, the transfer would generate a taxable gain, then the transmission of the proceeds of the sale would be taxed again. En inverting the order of operations, the tax burden is concentrated on donations.

The neutralization of real estate capital gain

Donation-transfer is of particular interest in terms of real estate capital gain, taking into account the taxation applicable to transfers of buildings owned by individuals.

In principle, real estate capital gain is taxed at the rate of 19% for income tax, to which are added the social security contributions at the rate of 17.2%, Be a global taxation of 36.2%, subject to allowances for length of detention.

The prior donation of the building makes it possible to neutralize this taxation by modifying the cost price used to calculate the capital gain. When the transfer takes place shortly after the donation, the sale price being close to the declared value, no taxable capital gain is recorded.

For example, a building acquired for €600,000 is given for a value of €900,000, then sold for the same amount. In the absence of a donation, the gross capital gain of €300,000 would have been taxed. The prior donation leads to the retention of a cost price of €900,000, thus neutralizing any added value.

Neutralization of capital gains

Donation-transfer is also a particularly effective tool in terms of capital gain, especially when the shares were acquired for a low value and have experienced a strong revaluation.

In principle, the sale of shares involves the taxation of capital gain under the regime of capital gains from individuals, falling under asset income and subject to single lump-sum levy, integrating income tax and social security contributions.

The prior donation of the shares makes it possible to neutralize this taxation taking into account the fiscal cost price the value declared in the act of gift. When the sale takes place shortly after, no taxable capital gain is recorded.

For example, shares acquired for almost zero value are donated for €1,000,000 and then sold for the same amount. The prior donation makes it possible to retain a cost price of 1,000,000€, thus neutralizing any taxation of capital gain.

The legal security of donation-transfer

Respect for the chronology: donation then transfer

Donation-transfer requires the donation to take place before the transfer. This requirement does not exclude that negotiations are already under way, or even if a promise has been signed, as long as the sale is not legally perfect at the date of the donation

When the donation relates to securities, the transfer of ownership must be effective as soon as the donation is made, This includes registering the securities in the donee's account. Otherwise, the tax authorities could consider that the donation actually relates to the sale price.

The risk of being called into question in the event of reappropriation

The tax administration may dismiss acts that are fictitious or pursue an exclusively or mainly fiscal objective, in particular on the basis of articles L. 64 and L. 64 A of the LPF.

The main risk does not lie in the temporal proximity between donation and transfer, but in the reappropriation, direct or indirect, by the donor of the assets transferred or of the proceeds from their transfer. The receipt of the prize by the donor is the major pitfall to avoid.

On the other hand, case-law admits, under certain conditions, schemes for re-employment, maintenance of dismemberment or virtual usufruct, provided that there is a real, justified and enforceable return claim for the benefit of the donees.

Donation-transfer with dismemberment and virtual usufruct

The donation of bare ownership

Donations can only be made to bare ownership of the shares, the donor maintaining the usufruct. In this case, the purge of capital gain is partial, limited to the portion of the right transferred.

During the subsequent sale, everyone is taxed on the capital gain corresponding to their right, unless the price is used in a dismembered asset allowing taxation to be concentrated in the hands of the bare owner.

The virtual usufruct on the sale proceeds

The use of virtual usufruct on the sale proceeds requires particular vigilance. It must be planned from the beginning or at the time of the transfer and be formalized in a manner consistent with the act of gift.

When properly structured, virtual usufruct allows the donor to dispose of the funds while being debtor of an equivalent return claim for the benefit of the non-owners. This claim constitutes a certain debt, in principle deductible from estate assets, subject to its real and enforceable nature.

Donation-transfer is a relevant tool for organizing the transfer of assets while limiting the tax burden associated with the transfer. When properly implemented, it makes it possible to avoid double taxation and to anticipate transmission in a secure environment.

However, this mechanism requires prior analysis and compliance with specific rules, in particular with regard to chronology and effective divestiture. As each asset situation is unique, donation-transfer must be adapted to the objectives and constraints specific to each person.