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Inheritance tax connected with your property in France, is something
of a minefield and immensely complicated.
Nevertheless, you will really need to get your head around the
whole subject, as it could have a direct bearing on how you should
proceed to purchase your French home and in whose name.
Whilst we have tried to give a potted version of the way things
are here in these 'Help' pages these are intended as rough guides
only. We feel it is essential that you seek professional advice
from recognised experts, when dealing with such matters as taxation
and making a Will.
The search is over and it is time to get down to the nitty- gritty
of the French property legal system. Of course, you have already
decided in whose name(s) the property is being bought, so no problem.
Or have you? How you proceed could have immense impact on those
you leave behind on death, so you really need to grasp the issues.
There are several ways in which you can buy a property in France
and we list the main ones below, with a brief explanation, so at
least you should be able to ask the right questions when seeking
professional advice on the subject. Here goes:
Your French property will be divided on death as proscribed by French
law, with the reserved part going to your reserved heirs and the
disposable part distributed according to your French Will. As there
is no spouse to complicate matters, this should all be very straightforward.
In order to protect each other in the event of the demise of your
partner, there are two ways you could buy your French property in
joint names. It should be noted, of course, that one disadvantage
of joint ownership is that, in order to sell, both parties must
agree! There are two recognised ways of buying property in France
under joint ownership are as follows.
- en indivision (tenancy in common); and
- en tontine (which is similar to a joint tenancy under English
law
En Indivision - You each own
your half (or other percentage) of the property, which on your
death
devolves according to French succession law. In other words, the
protected heirs (children) have rights over and above the surviving
spouse against the deceased's share. This is how most French lawyers
put your property into joint names in default of specific instructions
to the contrary, although it can have major disadvantages. Please
see our Help page on French inheritance Law - better still,
seek professional advice).
En Tontine - In order to avoid
the surviving spouse becoming embroiled in the division of the
property amongst reserved heirs (children - theirs and
their partners!) the property can be bought using a legal device
for joint ownership known as en tontine. This means that
upon the death of a spouse, their share of the property goes automatically
to the surviving spouse. The surviving spouse is deemed to have
owned all the property from the beginning and takes it all and
has complete freedom to dispose of the property as he or she wishes.
It is possible for the children to seek redress from the courts,
if they believe that they have been intentionally defrauded from
their inheritance, but such an action can be expensive and difficult
for non-French children to do. Indeed as the en tontine
clause is rarely used in France other than by British couples,
you may have to be very insistent with the Notaire who may regard
its use as a fraud against your children, even though it is perfectly
legal.
A possible downside to buying a property jointly en tontine,
could arise regarding the sale of a property when both parties
to the tontine clause are alive. As it is only possible
if both consent; if one declines to sell, the other cannot force
the sale. In the event of a matrimonial dispute, a court can have
difficulty making an order in relation to the property because
so long as both parties to the tontine are living, there is uncertainty
as to who is the owner. A court could therefore only order a sale
by both parties.
Please note that there are adverse tax implications for children
(eventually) inheriting property that has been bought en tontine.
Please see our help page regarding French Inheritance Tax, by
clicking this link.
Partners in same-sex marriages are not recognised as spouses under
French Property Inheritance law, as, currently, France does not
recognise an English Civil Partnership Act agreement.
In order to protect a surviving partner, you should take professional
advice, perhaps considering buying your property through an SCI.
In order to protect each other advice must be taken regarding Inheritance
taxation if buying property in joint names. As unmarrieds, you will
not be protected from taxation with the passing of property between
spouses. Partners in same sex marriages are not recognised as spouses
under French Property Inheritance law.
Please see our help page regarding French Inheritance Tax, by clicking
this link
What does SCI stand for? Société Civile Immobilière.
You form this 'company' to purchase your French property, and issue
shares to yourself and your partner/spouse.
The point being, if you own shares in a company which owns a French
property, you do not own a house in France, the company does.
All you own are shares in the company. Therefore, when you die,
the ownership of the house does not change; it is the shares which
change ownership, and succession law applies to these shares as
items of personal property, so that they will pass in accordance
with the succession law rules of the country where you are domiciled,
or were permanently resident in, up to the time of your death.
The main advantage of owning property through shares in a SCI,
is that French succession law is avoided if the shareholder dies
domiciled in England. Also the SCI - is not subject to the annual
minimum payment of French corporation tax as a normal French corporation
and the shareholders benefit from the favourable tax treatment of
capital gains realised by individuals.
However it is important to note that if you die whilst a resident
of France, while the strict French inheritance rules can normally
be avoided, so that the shares can be left to anyone, French inheritance
tax is still payable on these shares as if there were a legacy of
French real property to that beneficiary. Thus if the beneficiary
is not related to the deceased he or she will have to pay inheritance
tax at 60% against the value of the proportion of the property that
the shares represent.
Please seek professional advice before deciding which method
of owning a French property best suits your individual circumstances.
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