French Property – your questions answered from March 2015

Posted by Sarah Bogard

Senior Solicitor & Chartered Tax Adviser

We are in our mid & late 50’s, a divorcee and widower with children from previous relationships.  It is our intention to marry and have been told that for ease of translation, the French system and ultimately tax and inheritance tax that it would be better to be married in France. Would this be correct?

If we both put money up to make a purchase would it be necessary to buy the property in separate names?

Would it then be necessary to amend all documents at a later date after a marriage has taken place? Is there any provision for this circumstance?"

It is not possible to give a detailed reply within the limited space and indeed without some further information, but I will highlight some points to consider.

Marriage itself in France or the UK is not likely to have a significant impact on the position on your deaths. A marriage registered in the UK is recognised in France. To deal with an estate administration a Notaire will require a translation of a non-French marriage certificate, but this is easy to obtain and the cost is not likely to be too high.  A spouse exemption for French inheritance tax will be available (full exemption on transfers between spouses on death only).  I would mention it is important to know that under English law marriage automatically revokes a Will unless you declare in the Will that it is made in contemplation of your forthcoming marriage.  If you don’t review any existing Will you may find that you are intestate after you marry, and a distribution of your estate under intestacy rules may not accord with your objectives.

The key issue will be the structure of your marriage regime in France. France has different regimes, whereas there are none in England – you have an interest in jointly owned assets and those you own in your sole name. If France is where you settle to live immediately after your marriage, French law will dictate what matrimonial property regime you have, subject to you being able to choose which regime is to apply. For example, you could choose a separation of assets regime (you each own assets corresponding to the shares of assets you own) or a community of assets regime (you are deemed to be joint owners of all assets regardless of actual ownership).  If you can choose your matrimonial property regime then the existence of children from a previous marriage may impact on the effectiveness of the regime, due to fixed inheritance rights of children under French law.

Concerning financial contributions to the purchase price, if you make unequal contributions the purchase deed can state unequal ownership rather than 50/50. If you buy in equal shares you could ensure there is recognition of a debt between you if the intention is for you to receive the sale proceeds in the unequal proportions you contributed.  It is also possible for a property to be purchased in a sole name if this were to be found most beneficial when looking at the family structure and intentions on distribution of the property on death.

Your question highlights the great importance of getting the ownership structure of a property right at the time of purchase, and the need to get advice on all the options to be able to choose the most appropriate one.
A marriage after purchase should not result in you having to review the ownership of a particular property in France but if it is your intention to marry then this should be taken into account when deciding on the most suitable ownership structure.

 

We are in our mid & late 50’s, a divorcee and widower with the intention of marrying. We understand something of the French law that enables children to have a claim to part of the parent's estate. Due to actions of my 27 year old son I have dis-inherited him from my will. At this stage I would wish all of my estate (after my partner/wife's time, subject to whoever 'goes' first) to go to my 22 year old daughter respecting my partner/wife's wishes as well. We understand that the Notaire can make provision for such circumstances at the time of purchase of a property.

Would this be correct?

Currently French law dictates the distribution on death of property interests situated in France, no matter where you live.  The general concept of French law is that you cannot disinherit your children, although some property ownership structures can bypass children or delay their inheritance.  Having said this, a new EU Regulation will apply to estates from 17 August 2015 and the default position will be that the succession and estate administration laws of the country of a deceased’s last habitual residence will apply to the worldwide estate.  A testator will have the option to declare that he wants the internal laws of his country of nationality to apply instead.  You may know that English law gives you testamentary freedom to choose your beneficiaries of your estate on death. There are still some uncertainties in the interpretation of this Regulation where there is a connection with the UK, because the UK has opted out of it. How - or if - the Regulation applies will depend to some extent upon where you are resident.  If you live in the UK and you are of British nationality, then you should be able to avoid the fixed inheritance rights of children under French law, thereby disinheriting your son.  Warning - the Regulation makes no change to inheritance tax.  You are likely to want to avoid a direct transfer of assets from your partner/wife to your own child as this would attract a rate of 60% on almost all of her inheritance. You also want to be very careful of including French assets in a trust structure as this may have a detrimental tax impact in France.

If you are to be habitually resident in France you will need advice on your specific circumstances to ascertain the extent to which French law may apply to your estate and prevent you from disinheriting your son. One way to exclude your son’s inheritance rights might be to buy the property tontine between the two of you. When one of you dies the survivor becomes the sole owner and therefore your children would not inherit. However, if  your partner/wife then leaves the property to your daughter, the IHT rate of 60% will apply. Also, this may not help if your partner/wife dies before you.

Another option is to make use of the usufruit structure, to give the survivor of you and your wife/partner the right to continue using the property following the survivor’s death, but with it ultimately being for the benefit of the next generation. Again, thought must be given to the inheritance tax consequences, and whether  there could be any conflict between your wife/partner and your family that would cause problems as this structure creates joint ownership with the child/children.

I would mention that under English law marriage automatically revokes a Will unless you have made the Will declaring that it is in contemplation of your marriage.  If you do nothing you may find that you are intestate after you marry, and the application of intestacy laws may not accord with your intentions for the distribution of your estate.

The key points here are the importance of getting detailed advice on the property ownership options for you both and also the application of inheritance tax and succession laws – your residence status  and your nationality will have an impact on the succession advice you get.

NOTE:

This article was first published in French Property News Q&A in March 2015

 


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