Author: Matthew Cameron

Issue: April 2009

Publication: Living France

There has been talk recently that signs of an economic recovery are starting to appear. Throughout the recession, many agents have spoken of the number of people still interested in buying a property, just waiting for signs that better times were on the way. While in early summer 2009 it may be a little early to contemplate the end of the recession, it may nevertheless be a good time to start planning a purchase, and so think about how to structure the purchase. Rarely is owning a property through a company – once very popular – the most suitable method, so it is wise to consider estate planning as a first step, along with your solicitors.

If we can presume a purchase by a couple together then we shall briefly look at some of the options available for structuring the purchase. It should be noted that there are many possible options, and there is no replacement for a detailed and early analysis of your position and intentions with your solicitor. What happens to property under French law is vastly different from in the UK, so while you may well sell the property at some point, you should not ignore what may happen to it on your death if you die owning it.

A standard format for a purchase by two people would be to buy en indivision – that is jointly and such that each person’s interest would pass to his beneficiaries – not necessarily the survivor of them. Children have a fixed interest that could not be overruled through ownership en indivision, even if a Will purported to leave everything to the surviving partner. If the couple were not married, then it may well not be sensible to leave anything to each other anyway as otherwise the issue of inheritance tax becomes important for married couples (unless they have completed a PACS – a Pacte Civil de Solidarité) as it is subjected to 60% inheritance tax.

Ownership en indivision then, much like a British tenancy in common, means that each co-owner will leave his share to his reserved heirs, with the possibility that some will go to the surviving owner, whether by force of law or generally by virtue of a Will. It does mean that the survivor could be left owning property with the deceased’s children. This is likely to result overall in the most efficient method of inheritance tax reduction.

It can also result in an even split of property between the children of the couple, especially where those children came from previous marriages. However, the couple may prefer the survivor to inherit all of the property, irrespective of the children. There are ways of ensuring this.

The concept of joint ownership en indivision can be further amended to suit ones specific requirements – an uneven split in the property may be suitable, for example where one partner has put more into the purchase, or to reach an even division of the property between the different children of a couple. The owners can also consider granting each other life interests in their respective shares, although such steps may cause other fiscal disadvantages and should not be entertained without due consideration.

If a couple is not married, perhaps having completed a Pacte Civil de Solidarité, then in general the most suitable method will be ownership en tontine. By this option, the survivor of joint purchases will own the property absolutely. The tontine clause must be inserted in the initial purchase deed – the Acte de Vente – it cannot be added later. It does mean that where there are children from previous relationships, then the children of the first to die will be effectively disinherited. It can lead to problems in the event of a breakdown in your relationship and rarely is it good for tax reduction. It may, though, be the only option.

If, on the other hand, you are married and have no children other than from this marriage, then perhaps a more suitable option will be to effect a change of matrimonial regime, to apply French matrimonial law to your French house. In such a case, rather than a deceased’s share of a property passing immediately – in part at least – to the children, it is the surviving spouse who takes the whole of the property.

As already mentioned, French law does not like to see children disinherited: here the children are not being disinherited, rather their interests are deferred to the death of the surviving spouse. It is for this logic that a change of matrimonial regime would not generally be suitable where there are children from other relationships: if the parent of those children were the first to die, then they would be disinherited if everything were to pass to the surviving spouse – their step-parent. In such circumstances the Code Civil anticipates at article 1527 that those children would have a right to set aside the change of regime.

Again, in such a situation, if the most important consideration for the couple buying the property were to be an assurance that as far as possible it is the survivor of them two who would inherit all of the property, it is likely that the inclusion of a tontine clause would be the best option.

I mentioned previously that it is rarely suitable for couples to buy a property in France through a company structure. There are several reasons for this, one being the potential for corporate taxation regimes being applicable, depending on the form of any business activity carried out in the property. It would not work if the couple were to go to live in France either. Furthermore French court case history has shown in the past that where a company is constituted with the main aim of disinheriting the children, then those children would have a chance to set the whole structure aside. Such a risk of challenge is far less likely if a tontine structure is used.

In this article I have only considered a few various options for ownership between a couple. There are many different factors that can affect the final decision, such as place of residence, personal wishes, financial situation, children, tax, and French and English law. All of this being so, it is always therefore wise to seek early advice well in advance of any purchase in France.

Matthew Cameron
Solicitor, French Legal Services
Ashton KCJ Solicitors Tel: 01284 762331
Email: matthew.cameron@ashtonkcj.co.uk

This article is for general information purposes only and does not constitute legal or other professional advice. You should not act or rely upon this information.

Ashton KCJ is authorised and regulated by the Financial Services Authority.
Ashton KCJ Solicitors is regulated by the Solicitors Regulation Authority

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