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Legal Calendar in France affects French Property Owners

21 February 2008

2007 was a busy year for changes in French law. Three key changes affect property owners in France.

Inheritance Rights - French Law

Under English law you have the freedom to leave your assets to whomever you choose on your death. French law protects the inheritance rights of certain family members, particularly direct descendants.

If you own a property in France, French law states that you cannot disinherit ‘protected heirs’. From 1 January 2007 the list of protected heirs has been reduced and in the most common cases, only children, and a surviving spouse to some extent, will have protected inheritance rights.

Before last year, in the absence of any surviving spouse or children, parents and siblings had statutory inheritance rights.

The inheritance rights of ascendants and siblings is now very restricted and they will only receive a part of the French estate in limited circumstances, giving more freedom of choice as to who you wish to leave your French property to if you do not have any descendants.

1 January 2007 also saw the introduction of children being allowed to give up their inheritance rights prior to inheriting. To do this the beneficiary will have to go to France to sign a deed in front of two Notaires. 

The French laws of inheritance can in certain circumstances also extend to other assets, not just a property in France. Advice should be taken on your specific circumstances.

French Inheritance Tax

For French inheritance tax each beneficiary gets a ‘nil rate band allowance’ and he pays this tax on the value of his inheritance that exceeds his allowance. This is very different to UK inheritance tax, where the deceased gets a nil rate band allowance and the estate exceeding the allowance is taxed at 40%.

The French allowance is set according to the relationship between the beneficiary and the deceased. In general, the closer the relationship the higher the allowance. 

The rates of French inheritance tax start at 5% and increase to 40% for children and spouses, and 45% or 55% for other relatives. Unrelated beneficiaries suffer tax at a single rate of 60% on the amount of inheritance which exceeds their nil rate band allowance (which for 2008 is only €1,520).

Until August 2007 there was no full spouse exemption under French tax law on transfers between spouses on death; the allowance was restricted to €76,000.

A new law last year, which marks one of the first big moves made by President Sarkozy, has significantly increased the allowances for beneficiaries, and they will be increased each tax year (ie each calendar year in France) in line with inflation. The allowances for 2008 are:
• Between spouses – full spouse exemption (but be aware that there is no full spouse exemption on lifetime gifts between spouses);
• Between parent and child – €151,950 per child;
• Between siblings –€15,195 per sibling;
• For nieces and nephews - €7,598;
• Between couples who have signed a PACS (Pacte Civil de Solidarité) – full exemption (but be aware that there is no full exemption on lifetime gifts);
• Between unrelated persons – €1,520.

A stepchild counts as an unrelated beneficiary and so does not get much of an allowance at all. Therefore, without considering estate planning options, a child inheriting from a stepparent could end up paying a significant amount of French inheritance tax.

If you own assets in France – particularly a property - you should understand how the French inheritance and tax laws apply to your family circumstances, not to mention your UK inheritance and tax position. You should also take advice on any planning that can be done (preferably before buying a property) to make sure that as far as possible your objectives can be met on your death, with as little tax as possible to pay.

If you intend to move to France to live there permanently, you should be aware that the French laws could extend to assets outside France.

Le Dossier de Diagnostique Technique

Sellers in France have had to produce various reports to prospective buyers covering property issues, such as the existence of termites and asbestos at the property. This goes some way to providing information to a buyer on a property located in a country where surveys are not the norm. Having said this, it is advisable to get a survey before buying.

For sales after 1 November 2007 sellers must produce one complete package of reports – le dossier de diagnostique technique - covering the following where applicable:
• Presence of asbestos at the property (buildings for which planning permission was granted before 1 July 1997);
• Presence of lead at the property (for buildings built before 1949);
• Presence of termites if the property is situated in an area designated at being one where termites are present;
• State of the gas and electricity installations (for lodgings with installations more than 15 years old);
• Status of natural and technological risks in the area (for example risk of flooding) if the land is situated in an area where a plan for the prevention of such risks exists;
• Energy performance of the property.

Recent regulations now place a measure of control on individual drainage systems. From 1 January 2013 sellers will also have to produce a report on the drainage system.

The reports are valid for different lengths of time. So not only is it important to make sure as a buyer you get all the reports applicable to the sale, but also that they are in date.

Other recently new developments relevant to buying a French property include the regulation of security devices on swimming pools and closer monitoring of fosses septiques.

It is important to make sure that you are aware of all relevant issues relating to a property before you buy, so you know exactly what you are getting. It would be a costly purchase if you end up having to spend money getting rid of termites or putting in a new electricity or gas installation.

Note: Other changes are outside the scope of this update.

For more information contact Sarah Bogard.
 

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