Forms Of French Property Ownership
Forms Of French Property Ownership are more varied than in many countries and this article reviews the basics.
When buying in France, or any other country whose legal system is based on Roman law, the French property buyer needs to choose the most appropriate legal form of French property ownership. This is because the law often insists that property passes on death to particular relatives, regardless of what is specified specify in your Will.
There are different options available to couples or individuals wishing to purchase together. and the choice of legal ownership form should be chosen with regard to their legacy intentions and the French inheritance tax rules.
There are three main ways for individuals to buy a property together, each with different legal and tax implications:
- En Indivision
- Communauté Universelle.
Purchasing a French property in en indivision is the default form of buying French property.
It is similar to the English tenancy in common. 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. Under French law 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, as the children would be entitled to their nil rate bands on any inheritance from both on the first and second death.
If the surviving partner wants to continue controlling the house, a clause under section 1873-13 of the French civil code can be inserted in 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 (eg. children). However it means that an equivalent in money must be given to them.
If the couple’s main wish is to secure each other, a further 3 options may be available to them.
French buyers have the option of instructing the French Notaire handling their purchase to insert a tontine clause in the purchase deed. The Tontine clause can not be added by amendment after the completion of the purchase.
The effect of the tontine is that the property would pass to the surviving spouse automatically on the first death and the children inherit nothing.
Upon the first death, the survivor will be deemed to have been the legal owner of the whole property back to the 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 two tests being satisfied:
- Both buyers need to contribute approximately equally to the purchase price
- Both tontiniers need to have similar life expectancies
From a tax point of view, the French tax authorities would consider that half of the property falls within the deceased’s estate.
A tontine between a parent and a child is likely to be successfully challenged by the French Revenue and disallowed.
If one partner is much younger than the other one, 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 ten years is likely to render the tontine invalid in case of a challenge from disinherited children.
In France, married couples can sign a French marriage contract in order to vary their marital regime and choose the French regime of a La communauté universelle avec attribution au survivant (Community of property with attribution to the survivor).
This is treated as a form of postnuptial agreement under French law.
The property will automatically pass to the surviving spouse. However, contrary to 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 real property, such as a holiday home.
A communauté universelle can be signed after the property has been bought.
Those relocating to France will have the possibility of including all their assets and debts wherever they are located internationally.
In France it is possible purchase French property via a company, such as a SCI or limited company.
The tax treatment of such companies by the French tax authorities is often very complex and will include consideration beyond just ownership including the letting of the property, the disposal of shares and the reselling of the property.
If you are considering this option you should take qualified legal advice before you are committed to the purchase and you should also be aware that not all French banks will grant a French mortgage on a company held property.