Buying a home in France? Make sure you get it right first time

27th October 2016

So your holiday in the sun is over and those long, relaxing days by the pool have left you dreaming of owning a place of your own in France – but before you take the plunge, have you thought about what will happen to the property after you are gone?

“If you’re thinking about succession planning, it’s really important to understand the different property ownership structures that are available,” says French property law specialist Sarah Bogard. “Ignoring the options could mean you end up in a worse tax position or things not going the way you planned on your death.

“We receive many enquiries from French property owners seeking advice about their Wills, who didn’t take advice at the time of the purchase. Some happen to fall upon the right structure but, unfortunately, many find out too late that they could have done better.”

So why is the property ownership structure so important?

“We have to put it into context,” says Sarah, a Partner at leading south east law firm Furley Page. “French law provides protection of heirs through fixed inheritance rights for close family – primarily children and a spouse but, if someone dies intestate, parents and siblings too. Until recently, French law would always apply to the distribution of a French property on someone’s death, and with it the restrictions on who could inherit.

“Since 17 August 2015, however, the concept of unity of succession (one country’s laws to apply to the whole estate) for cross-border estates with an EU element has been introduced across the EU member states via an EU Succession Regulation – and even though the UK chose not to opt in to the Regulation, it still has a huge impact on British people who have some connection with a regulation-participating member state such as France. It might be residence in another EU country, ownership of assets there, or you have the nationality of another country.”

Now, French succession law will not necessarily apply to a French property, explains Sarah. “The general rule is that the succession laws of the country of last habitual residence will apply, unless you state in your Will that you want your national law to apply.”

So how do you decide which property ownership structure is right for you?

“Inheritance Tax will be a key consideration,” says Sarah. “France retains the right to tax a French property. There is a full exemption for transfers between spouses and civil partners on death and allowances for certain beneficiaries – for example, a child, but if you leave your French property to a stepchild, the tax rate of 60% will still apply.”

There are three main ownership structures to consider: Indivision, Tontine and Usufruit.

Indivision means that, unless the property purchase deed provides otherwise, an equal split of the ownership between the buyers is presumed,” says Sarah. “So when one of you dies, the surviving co-owner doesn’t automatically become the sole owner. How the owners’ respective interests in the property will pass on death will depend on which country’s succession laws apply, and what you state in your Will. If you don’t tell the Notaire what ownership structure you want, he is most likely to draft your purchase deed with this structure.

Tontine means that, when the first owner dies, the surviving co-owner becomes the sole proprietor. The problem is that, if you want to own a property tontine, you have to make that decision at the time of purchase because it can’t be arranged after completion.

“This ownership structure can be useful if a couple with common children want to delay their inheritance until the surviving parent’s death but it’s very difficult to break the agreement unless both co-owners are agreed on what to do with the property. The decision to choose this structure must be thought through carefully.

“The third option, Usufruit, is a type of French asset ownership structure where different people have different interests in an asset – an interest in occupation of the property and receipt of any income it produces, and an interest in the substance of the property (capital value).

“It’s useful for couples with children from a previous relationship because of its potential French Inheritance Tax benefits but it can have its disadvantages – the main one being the co-ownership of the property between parent and child / stepchild. The survivor no longer has the sole discretion to sell and, on a sale, the survivor wouldn’t receive the full proceeds, they’d be split proportionately between all co-owners.”

With a number of property ownership structures to choose from, Sarah says it’s vital to get it right in the first place. “Getting advice at the point of purchase can make the difference between achieving your succession planning objectives or failing.”

For further advice, email Sarah Bogard at france@furleypage.co.uk or call 01227 763939.

 

 

About Sarah Bogard
Sarah Bogard specialises in advising clients on the ownership of property in France and is also a Chartered Tax Adviser and member of the Chartered Institute of Taxation. She and her team advise on all aspects of English and French Will drafting, tax and estate planning. Sarah regularly gives seminars on making a Will and is a contributor for French magazine French Property News. Her French legal work includes helping beneficiaries with the administration of an estate following death which comprises French assets, and advising on matters of French succession and Wills. A fluent French speaker, her work regularly involves liaising with Notaires in France.

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