The dividing line

Think carefully about the legal implications of buying in France, before you sign the contract, says Marie Slavov

Careful planning is essential when buying in France or any other country whose legal system is based on Roman Law. This is because the law often insists that, on your death, your property passes to particular relatives, regardless of what your will says.

There are different methods available to couples or individuals who wish to purchase property together. Their inheritance wishes and the French inheritance tax rules will influence how they should hold the property.

There are three main ways in which individuals can buy a property together, each with different legal and tax implications. The first one is comparable to the English tenancy in common (indivision). The next two are comparable to the English joint tenancy (tontine or marriage contract with communaut� universelle).

Buying in joint names (en indivision)

The default mode of buying in France is similar to the English tenancy in common and is called indivision. The share in the property will be governed by the French statutory rules of succession, which do not allow a married couple with children to bequeath the whole of their share to each other on the first death. There is a portion reserved for the children.

However, from a tax point of view, this structure of ownership may be the most tax efficient, especially if the children are the couple’s, as these children would be entitled to nil-rate bands both on the first and second death.

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If the surviving partner wants to maintain a controlling interest in the house, a clause under section 1873-13 of the French Civil Code can be inserted into the deed at the time of purchase in order for the surviving spouse to have a first option to buy out the deceased’s beneficiaries. However, it means that an equivalent in money must be given to them that is equal to their share of the house.

If the couple’s main wish is to secure each other’s position, a further three options may be available to them.

A survivorship clause (en tontine)

Buyers can ask the French notaire in charge of their purchase to insert a tontine clause into the deed. It can not be added after the completion of the purchase.

The effect of the tontine clause is that the property would pass to the surviving spouse automatically on the first death and the children would not be involved.

Indeed, upon the first death, the survivor will be deemed to have been the legal owner of the whole property back from completion date so that, in effect, it never belonged to the deceased for the purpose of the rules of inheritance.

This means that the children of the first partner to die will not have any claim (subject to the two tests below being satisfied).

From a tax point of view however, the Revenue considers that half of the property falls within the deceased’s estate.

For the tontine to be valid, two tests must be satisfied. First, both buyers need to contribute approximately equal amounts to the purchase price and secondly, both tontiniers must have similar life expectancies.

This means that a tontine between a parent and a child is likely to be successfully challenged by the French Revenue. Also, if one partner is much younger than the other, or is sick when buying, the children of the first partner to die would be entitled to have the tontine treated as a disguised gift. Case law varies but an age difference of more than 10 years is likely to render the tontine invalid in case of a challenge from disinherited offspring.

Community property (communaut� universelle)

Alternatively, married couples can sign a French marriage contract in order to vary their marital regime and choose a French regime of community of property with attribution to the survivor’ (la communaut� universelle avec attribution au survivant).

This is a form of postnuptial agreement under French law whereby the property will automatically pass to the surviving spouse. However, unlike a tontine, children from a previous relationship retain a five-year claim against the surviving spouse to claim their statutory rights.

People who are not resident in France can choose to have a marriage contract limited to French property, such as a holiday home. It can also be signed after the property has been bought. Those relocating will have the possibility of including all their assets, wherever they are based. It means that all debts will be joint as well.

UK limited companies

I will just touch here on the purchase of property in France via a company such as an SCI (soci�t� civile immobili�re) or limited company.

Extreme caution must be taken if you wish to buy with a UK limited company. The tax treatment of such companies by the French Revenue are often underestimated, including the letting of the property, the disposal of shares (even if the transfer takes place in the UK) and the reselling of the property.

To conclude, therefore, despite statutory rules of inheritance, individuals buying in France have a few options to consider in which they can duplicate the English way of leaving assets to the spouse on the first death.

It may not be the most tax-efficient way, depending on the value of the property and further considerations will need to be taken into account where there are also children from previous relationships involved.

Marie Slavov, French lawyer,

Blake Lapthorn

Tel: 023 9253 0346

www.bllaw.co.uk