The Client
A French couple, aged 52 and 49, along with their two children, aged 18 and 16, have lived in Dubai for the past 12 years. As they plan to return to France, they aim to efficiently transfer their wealth to their children. The couple has earmarked a total of €8 million to be gifted equally to their children, with each parent contributing €2 million per child.
Key Tax Consideration: While Dubai does not impose gift taxes, France applies high progressive rates to gifts, which could result in significant liabilities if the family were to gift assets after repatriation.
The Solution
To address their concerns, the couple has two options:
Option 1: Gifting While Residing in Dubai
While living in Dubai, the couple can gift their “non-French” assets to their children without incurring French gift tax. Each parent gifts €2 million to each child, totalling €4 million per child. The children can then reinvest the gifted amount into life insurance policies, benefiting from long-term tax efficiency.
Option 2: Gifting After Returning to France
As the family prepares to return to France, they face the challenge of transferring their wealth without incurring substantial gift taxes. In France, gift tax is calculated for each recipient based on what they receive from each donor, with a progressive rate applied after an allowance of €100,000 per parent per child.
The couple plans to gift €4 million to each child (€2 million from each parent). After applying the €100,000 allowance per parent, the taxable amount per child becomes €1.9 million from each parent. Since each child receives €2 million from each parent, the total taxable base is €3.8 million per child.
The French gift tax follows progressive rates, resulting in the following potential liability:
- Total gift tax per parent per child: €617,394
- Total gift tax per child (from both parents): €1,234,788
- Total gift tax for both children: €2,469,567
By waiting to return to France before making the donation, the family would owe over €2.4 million in gift taxes. This underscores the importance of strategic planning and the substantial tax savings that can be achieved by gifting while still residing in Dubai.
The Benefits
This case study illustrates the substantial tax savings of planning gifting strategies prior to repatriation. The benefits of using a life insurance solution include:
- Tax Efficiency: Reinvesting the gifted amount into life insurance policies provides long-term tax benefits.
- Asset Protection: Life insurance policies can protect the gifted assets from future liabilities.
- Flexibility: The arrangement can be adjusted as family circumstances change.
- Control: The couple maintains control over the investment decisions and access to their wealth during their lifetime.