There are a few simple steps you can take before you become the owner of French property and sometimes afterwards, to ensure that your French estate is dealt with in the way you wish during your lifetime and after death. French succession law is somewhat different to English succession law and its provisions may come as a surprise to English buyers who are used to the idea of testamentary freedom. Family situations are often complex these days, with second marriages, stepchildren and so on and provisions usually need to be made at the time of purchase to avoid difficult circumstances later on.
En Indivision and En Tontine
The first point to be aware of is what is meant by joint ownership. The usual method in France is that of indivision. This means that each purchaser owns a certain portion of the property as specified in the acte de vente, which is similar to the tenants-in-common situation in England. If a married couple want to buy a property together, they usually want the survivor to have ownership of the property after the first death. This will not automatically happen as the French are very protective of children in their legal provisions and will use the indivision method in preference to any other. Therefore, joint ownership en indivision means that when the first spouse dies, at least half their French estate must go to that person’s children. The remaining spouse therefore does not have freedom to do with the property as he or she wishes. If the children are those of the deceased from a previous marriage, then the survivor may be in the uncomfortable position of being in joint ownership with stepchildren.
These situations can be avoided by having a tontine clause inserted in the final conveyance deed (acte de vente). Ownership en tontine roughly equates with joint tenancy in English law and will mean that when the first spouse dies, the survivor will be considered as having owned the property from the start and thus the rights of the deceased’s heirs can be avoided.
Another important aspect to consider is that of inheritance tax. The tax-free allowances in France are not nearly so generous as in England. Even with a tontine clause, inheritance tax will still be payable on half the value of the property at the time of the first death, if the joint owners are not a married couple or in a civil partnership. Consideration must therefore be given to the value of the property in relation to current inheritance tax rates and allowances to see if further precautions are necessary.
A French Marriage Régime
When the French get married, they often sign a marriage contract which determines how their property is dealt with on death. The régime of communauté universelle de biens ensures that on the first death, all the property of the marriage is owned by the survivor with no succession to deal with. English buyers can adopt a French marriage regime just in respect of their French property.
Those who decide to go and live in France permanently will find that their worldwide assets are then subject to French succession law and tax, as opposed to just the French real property. In these circumstances, it may be worth adopting an appropriate marriage regime. However, where there are children from a previous marriage, many French notaires would not be happy to deal with the kind of marriage regime which could have the effect of disinheriting children and would be surprised that anyone might want to do this. Even though such a marriage regime is perfectly legal and valid, according to the French civil code, it will be set aside if the children take action to enforce their succession rights. Mr X and Mrs X have moved to France and want to leave all their property to each other and then to Mr X’s two children from his first marriage. They adopt the regime of communauté universelle. If Mr X dies first, then the children can take action so that the regime is ignored as far as two thirds of their father’s estate is concerned, as this is their legal reserve. However, if the children were willing to renounce their right to take action at this point, then the property would pass under the regime as intended with no inheritance tax. A law that came into effect in January 2007 allows the children to renounce their rights before the death of their parent and then exercise them after the death of their step-parent. This may be a very useful solution for ‘blended families’.
The SCI – A French Property Owning Company
Another useful solution to some purchasing situations is to set up an SCI. An SCI is a company set up for the management and letting of property. If the property is bought by the SCI, the members of the company own shares rather than property. As shares are considered to be personal property, not real property, then English succession law applies and the shares can be left in accordance with the deceased’s wishes. The SCI also gives the members a lot of flexibility as they can transfer shares freely between themselves and to others (usually with the agreement of all members only). This means, for example, that parents can gift shares to their children during their lifetime thereby avoiding inheritance tax liability for them. However, the gift must be given at least 15 years before death. The company must keep accounts and hold an annual general meeting. As a means of avoiding succession law, this structure only works if the owners remain resident in the UK.
Do you need a French will? When an owner of French property dies, the succession must be dealt with in France. If there is no will for the French property, the English will must be applied as long as it does not contravene French succession law. A translation must be provided which satisfies the notaire dealing with the succession. This will have to be dealt with by an appropriately accredited translator causing difficulties and expense to the heirs. If a husband has willed his property to his wife and has not left the required amount to his children, this provision will be ignored. It is usually advisable to have a French will for the French estate.
Cross-Border Succession Regulation
A European regulation came into force in August 2015 which allows those owning property in another European country the right to apply either the law of their habitual residence or the law of their nationality to their estate. Therefore English owners of French property can apply English law to their French estate. However, it does not change the situation with respect to the French inheritance tax which would still be payable. Therefore, you should take advice on your own particular circumstances before proceeding. It is usually beneficial to stipulate that English law applies but not always.
Sue Busby MA F.Inst.Pa
France Legal Ltd
Tel/Fax: 01473 311107
France Legal Ltd