French property buying guide part 4: inheritance
PUBLISHED: 16:47 01 May 2015 | UPDATED: 11:02 28 October 2015
Sue Busby considers some of the inheritance problems that French property buyers may face further down the line, and finds the French way may be the best way
Most people buying property in France are aware that French succession law is different from UK succession law. There are stories about children taking precedence over the surviving spouse and so on, and buyers are often rightly concerned about the consequences of being subject to French law.
From August 2015, thanks to the new European regulation on cross-border succession, it will be possible to choose either the law of your nationality to apply to your estate or the law of the place where you are habitually resident. A UK national who owns a property in France will be able to state in a will that he wishes UK law to be applied to his French estate.
Does this new situation mean that our problems are solved and that we no longer have to worry about French laws when we own property in France? Well, unfortunately, although you can apply UK law, you cannot avoid French tax and since it is often the tax rates that cause the problems, it may often be more useful to stick with French legal solutions to solve inheritance problems.
EACH TO THEIR OWN
Each buyer’s/family’s situation is different and therefore advice is needed on a case by case basis but let us take one of the most common situations that arise for families.
John and Susan Smith are on their second marriage and have two children each from their previous marriages. They would like to leave the property to each other when the first spouse dies so that the surviving spouse has full control of the property during his/her lifetime but then when the second spouse dies they would like their four children to inherit the property equally.
If John were to die first, under French law, his children would be entitled to inherit a minimum of two-thirds of his French estate. If he chose to nominate English law to apply to his French estate, then he could leave it all to Susan. However, when Susan dies, if she chooses to leave any part of her French estate to John’s children, they would be taxed on this legacy at a rate of 60%, as they are not related to Susan. Therefore, although John is able to circumvent French succession law, this does nothing at all to help his children avoid a high tax liability. Now, let us look at the French solutions to the above situation. If John were to leave only a life interest in the property to Susan instead of full ownership, she would be able to use and enjoy the property during her lifetime but then on her death John’s share of the property would go to his own children, and they would only have to pay tax on this legacy at the favourable rates between parents and children.
The disadvantage of this method is perhaps that by only having a life interest, Susan would be in a kind of joint ownership with John’s children and could only sell the property with their agreement.
Also, the children would receive a share of the proceeds of the sale calculated on the value of Susan’s life interest, which would depend on her age at the time.
However, it is worth mentioning that Susan would be able to sell the property and use the proceeds to buy another one if it was her principal residence and it was no longer suitable for her due to ill health or disability and she needed a smaller or more suitable type of property.
In order to overcome some of the problems presented by the life interest solution, John and Susan could have adopted the French marriage regime of communauté universelle de biens. This involves signing a deed which determines how property is dealt with on death. This would mean that on the first death, the whole property would transfer to the surviving spouse.
At this point, the children would have the right to have the regime set aside insofar as it affected their rights as legal heirs. This would mean that they would receive one-third of John’s estate each. However, if the children agreed, while their father was still alive, to renounce the right to take action against the marriage regime during the lifetime of the surviving spouse, then Susan would have ownership and control of the property during her lifetime but on her death, the children would be able to take action against the regime and inherit their share of their father’s estate at the favourable tax rates. Both the surviving spouse and the children are well looked after.
Thus, the two solutions available in French law, outlined above, provide a much better result for this particular family as a whole than could be achieved by applying UK law. Other family situations might be better served by applying UK law but all the circumstances and objectives should be carefully considered before deciding on one or other.
Sue Busby owns law firm France Legal
Tel: 01449 736644
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