Published: Faces and Places

Date: 24th November 2010

Author: Matthew Cameron

If you are considering purchasing property in France; now may be a good time to start planning and thinking about how to structure your purchase.

French law is vastly different from UK Law. By giving a detailed analysis of your position and intentions to your solicitor they can ensure that the purchase structure meets your objectives; even if you plan to sell in the future, you should not ignore what may happen on yours or your partner’s death.

The standard purchase structure for joint ownership is en indivision. This means the property is owned jointly, with each owner’s interest passing to his or her beneficiaries, not necessarily the surviving partner. Children have fixed interests under French Law that cannot be overruled through ownership en indivision, even if a Will leaves everything to the surviving partner. If unmarried (unless a PACS– a Pacte Civil de Solidarité – has been completed), then it may not be sensible to leave anything to each other anyway, as otherwise the issue of inheritance tax becomes more important than for married couples as the inheriting partner is subjected to 60% inheritance tax.

Ownership en indivision is like a British tenancy in common whereby each co-owner leaves their share to their children if any according to the French forced heirship rules, with the possibility that some may go to the surviving partner, whether by force of law or by virtue of a Will. It does mean that the survivor may own the property with the deceased’s children. This is likely to result overall in the most efficient method of inheritance tax reduction.

This can ensure an even split between the children, especially where those children came from previous marriages.

The concept of joint ownership en indivision can be further amended if an uneven split in the property is required, especially if one has put more into the purchase, or to reach an even division of property between the different children of a couple. The owners can also consider granting each other life interests in their respective shares, this may cause fiscal disadvantages and should not be considered without advice.

However, there are ways to enable the surviving partner to inherit all of the property, irrespective of the children. For unmarried couples wanting the surviving partner to inherit fully, then buying en tontine can be considered. This entitles the surviving partner to take ownership on the first death. The tontine clause must be inserted in the purchase deed, the Acte de Vente, it cannot be added later. It does mean that where there are children from previous relationships, the children of the first to die will be disinherited. This can lead to problems should relationships breakdown and rarely is it good for tax reduction.

If you are married and only have children from this marriage, then you can effect a change of matrimonial regime, to apply French matrimonial law to your French house. This ensures the surviving spouse inherits the whole of the property rather than the deceased’s share passing immediately, in part at least, to the children. However here the children are not being disinherited; their interests are deferred to the death of the surviving spouse. This structure would not generally be suitable if step children are involved: if the parent of those children were the first to die, then they would be disinherited if everything were to pass to their step parent. In such circumstances the Code Civil anticipates at article 1527 that stepchildren would have a right to set aside the change of regime and then the inclusion of a tontine clause would be the best option.

We would not encourage purchase through a company structure. Corporate taxation regimes may apply, depending on any business activity being carried out in the property. It would also not work should you live in France either. Furthermore French court case history has shown that where a company is constituted with the main aim of disinheriting the children, then they 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.

There are many different factors that can affect the final structure, such as: place of residence, personal wishes, financial situation, children, tax, and French and English law. Taking all of this into consideration, it is therefore advisable to seek early advice well in advance of any purchase in France.

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