French Property Law – A Question Answered

By | May 10, 2023

My wife and I are considering buying a property in France. We both have children from a previous marriage. What things should we be considering when we buy?There are two main issues you should consider – succession and inheritance tax. Many couples don’t and end up incurring costs because they have to restructure their affairs so they can meet their objectives. Don’t get swept along by fulfilling your dream of owning a property in France without considering these important points early on.How you buy the property between you will dictate what will happen when one of you dies. Legal advice on your specific circumstances is recommended. Each case is different – it’s not a matter of ‘one size fits all’.The first step is to identify who you want to own, and have use of, the property on each death. You’d need to look at this in the round, taking into account how the rest of your estate is to be distributed on death. You should then consider whether you will be restricted by law in what you want to achieve.French law will apply to the succession of the property on the death of an owner. Protected heirs (known as heritiers reservataires) have fixed inheritance rights to a minimum portion of your estate which is governed by French law. Protected heirs are usually your children. You may be surprised to know that a surviving spouse has only limited protection under French law. In some circumstances other family members may have inheritance rights – but in your case we are concerned about you, your wife and your children.There are two forms of joint outright ownership of property – tontine and indivision. The default position is indivision in equal shares. If you want to reflect unequal contributions in the purchase deed it’s important to raise this with your legal adviser. If you own en indivision, on each of your deaths French law will dictate who is to inherit your portion of the property. For example, if you die before your wife, your children will have inheritance rights in respect of your share, leading to joint ownership with your wife. You’ll need to think about whether this is likely to cause any problems for any of them. Might there be an issue if your wife remarries, wants to occupy the property permanently, wants to sell, or doesn’t have a good relationship with your children? Also, would the divorce or financial difficulties of a child have an adverse impact on your wife’s interest in the property?Buying a property en tontine involves a system of automatic survivorship. It’s a contractual arrangement between you whereby the last surviving owner is deemed to have been the sole owner from your purchase. This means that if you die before your wife, your children’s inheritance rights are effectively overridden and the property passes into the sole ownership of your wife. You can only insert the tontine clause at the time of purchase so you must decide whether or not this option’s for you before you buy.It’s important to understand the consequences of tontine ownership – particularly as it could lead to you disinheriting your children. Step-children have no statutory inheritance rights under French law in respect of a step-parent’s estate so if you were to die before your wife and she becomes the sole owner of the property because you had a tontine clause, on your wife’s subsequent death your own children will not be heritiers reservataires.Your legal adviser should clarify all the consequences of tontine ownership and the circumstances in which an attack could be made on the tontine clause. For example, an argument could arise over the validity of the clause if you and your wife didn’t make equal contributions to the purchase price, saying you have used the tontine clause to disguise a gift made from one to the other.Another option is to sign a change of matrimonial property regime deed. You can have a system of community of assets (known as a communaute universelle) which has a similar effect to the tontine clause in that it gives automatic survivorship but would also apply to any future property purchased in France as well as the one you’re intending to buy now. On your death, your wife would become the sole owner of the property. However, because your children are of a previous relationship they would have the opportunity to claim the portion of your estate that they would otherwise be entitled to under French law had you not signed the matrimonial property regime deed.French succession law applies to the distribution of the French property on death because it is an immovable asset located in France. It’s possible to change the asset in your estate to a movable asset, and assuming that you intend to retain your domicile of England and Wales (if this is your domicile) then English succession law would apply to the distribution of that asset – and allow you to distribute it to whoever you choose. You would buy the property through a company structure – for example via a French SCI (Societe Civile Immobiliere) – and each subscribe cash in return for a shareholding in the company which then uses the cash to buy the property. The asset in your estate is a shareholding which could avoid the application of French inheritance law but it won’t avoid French inheritance law applying, though.Another option is to own the property in one name only – but you’d need to give careful thought to the consequences of doing this and whether it will achieve your objectives as to the distribution on the owner’s death.Once you’ve worked out the ownership option that best suit you, you’ll need to think about how French inheritance tax law will apply.French inheritance tax is calculated by reference to your beneficiaries and the tax is payable by the beneficiaries rather than coming out of the estate. Each beneficiary has a nil rate band allowance and the amount depends on the relationship of the beneficiary to the deceased person. Your children will have a nil rate band allowance of €156,974 (all figures here are for 2010) whereas stepchildren inheriting direct from you will only have an allowance of €1,570. The rate of tax for your children is calculated on a scale from 5% to 40%. A flat rate of 60% applies for stepchildren. It’s important to understand how inheritance tax law will apply because you may be able to structure your affairs to minimise the tax bill for your beneficiaries.There is a full exemption on transfers on death between spouses.You should also think about your Wills at the time of purchase. If you don’t have a Will covering the distribution of a French property then your wife would only be entitled to receive a one quarter share of your interest in the property. If it’s covered by a Will you can increase the interest she gets by giving her a choice from a number of inheritance options, one being to take a life interest – an usufruit – over your share. This can be particularly helpful because it can give her exclusive occupation of the property while avoiding a 60% tax rate on a transfer from step-parent to stepchild – and it could help to achieve equality of inheritance of the property between the children (for example, if you each have two children.) It’s essential to get advice on the pros and cons of taking an usufruit, though.Although a Will in your home country may be recognised in France, it cannot override the application of French succession law and in many circumstances it may be preferable to have a separate French Will.Your legal adviser should guide you on the laws of both your home country and of France to enable you to structure your affairs to your best advantage.