Should in­her­i­tance rules af­fect the way you buy your prop­erty?

French Property News - - Contents - Char­lotte Mac­don­ald is an As­so­ciate Solic­i­tor spe­cial­is­ing in in­ter­na­tional and cross-bor­der law at Stone King LLP Tel: 01225 326757 stonek­

Prior to Au­gust 2015, if a per­son died own­ing a prop­erty in France that prop­erty would pass un­der the French forced heir­ship laws. Put sim­ply, if you had one child, they would be en­ti­tled to one half of your French prop­erty; if you had two chil­dren, they would be en­ti­tled to two-thirds of your French prop­erty; and if you had three or more chil­dren they would be en­ti­tled to three-quar­ters of your French prop­erty.

Th­ese forced heir­ship rules sat un­easily with most Bri­tish prop­erty own­ers who were used to the idea that they could leave their prop­erty to whomever they wanted when they died. Un­der English and Welsh law, as long as you have a valid will, you can gen­er­ally leave your as­sets to whomever you wish, be that your fam­ily, friends or char­ity.

Fol­low­ing the in­tro­duc­tion of the EU Suc­ces­sion Reg­u­la­tion (650/2012) in Au­gust 2015, it has been pos­si­ble for those with Bri­tish na­tion­al­ity, who are most as­so­ci­ated with the ju­ris­dic­tion of Eng­land and Wales, to elect the laws of Eng­land and Wales to ap­ply to their French wills. This means that an English per­son is free to choose who they leave their prop­erty to, as they can do in Eng­land.

How­ever, be­fore the EU Suc­ces­sion Reg­u­la­tion came into force, Bri­tish buy­ers bought their prop­er­ties in sev­eral dif­fer­ent ways in or­der to avoid French forced heir­ship rules. It is use­ful to be aware of th­ese when en­ter­ing the French prop­erty mar­ket, as they may still have ad­van­tages.

En ton­tine

Bri­tish cou­ples, who wished for their prop­erty to pass to their part­ner when they passed away, would of­ten buy a prop­erty en ton­tine. When a prop­erty is bought by two peo­ple and the pur­chase deed con­tains a ton­tine clause, it has the ef­fect that should one of them pass away, the prop­erty be­comes owned solely by the sur­viv­ing part­ner.

The first of the cou­ple to die can­not leave their ‘share’ of the prop­erty un­der their will, and it will not pass un­der the French forced heir­ship rules be­cause it will au­to­mat­i­cally be deemed to be owned com­pletely by the sur­viv­ing co-owner. Buy­ing a prop­erty en ton­tine was a way of en­sur­ing that the co-owner (of­ten a spouse or part­ner) would be­come the sole owner of the prop­erty should the other pass away. This was es­pe­cially im­por­tant for any­one who did not want their chil­dren to in­herit, or who only wanted their chil­dren to in­herit once both part­ners had died.

While it was an ef­fec­tive way of avoid­ing the French forced heir­ship rules, a ton­tine clause is not ideal in all sit­u­a­tions. It can­not be en­tered into the pur­chase deed ret­ro­spec­tively; it has to be done at the time of pur­chase and it is also pos­si­ble for chil­dren (if the co-own­ers are not jointly their par­ents) to chal­lenge the clause. Per­haps one of the big­gest lim­i­ta­tions of own­ing a prop­erty en ton­tine is that it re­stricts the in­her­i­tance tax plan­ning that a cou­ple can carry out.

SCI – So­ciété Civile Im­mo­bil­ière

An SCI is a type of non-trad­ing French com­pany through which it is pos­si­ble to own and man­age prop­erty. SCI own­er­ship has been a pop­u­lar way of avoid­ing the French forced heir­ship rules. Tech­ni­cally, un­der the pre-2015 rules, while real es­tate prop­erty was sub­ject to the French forced heir­ship rules, shares in a com­pany (as mov­able as­sets) were not for in­di­vid­u­als domi­ciled out­side France.

This meant an English per­son could own all the shares of a prop­erty in an SCI and leave them to their spouse rather than their chil­dren, if they wished to. While the use of SCIS can still be use­ful, even since the in­tro­duc­tion of the EU Suc­ces­sion Reg­u­la­tion (es­pe­cially if there are go­ing to be mul­ti­ple own­ers), the costs of set­ting up and wind­ing up the SCI should be care­fully con­sid­ered.

En in­di­vi­sion

Since the new EU Suc­ces­sion Reg­u­la­tion came into force, buy­ing a prop­erty en in­di­vi­sion has be­come the stan­dard way for Bri­tish peo­ple to pur­chase prop­erty in France with a co-owner. Each buyer will own their share of the prop­erty (for ex­am­ple 15%, 25%, 50% etc). They can leave this share un­der their will, or it can pass by the French forced heir­ship rules.

For those wish­ing to avoid forced heir­ship rules, they can now elect for English and Welsh law to ap­ply in their will and have max­i­mum flex­i­bil­ity on how to leave their share of their prop­erty.

Own­ing a prop­erty en in­di­vi­sion pro­vides wide scope for in­her­i­tance plan­ning, both at the

For those wish­ing to avoid forced heir­ship rules, they can now elect for English and Welsh law to ap­ply in their will and have max­i­mum flex­i­bil­ity on how to leave their share of their prop­erty

time of pur­chase and go­ing for­ward, if and when per­sonal cir­cum­stances change.

Other mod­els of own­er­ship

There are also other ways that mar­ried cou­ples can own prop­erty in France. For ex­am­ple, mat­ri­mo­nial prop­erty regimes ex­ist in many parts of the world and gov­ern how a mar­ried cou­ple’s as­sets are split upon mar­riage and death, in­clud­ing in France (but not the UK).

If a mar­ried cou­ple en­ters into a French mat­ri­mo­nial prop­erty regime, they can choose for their mar­riage con­tract to in­clude a clause which states that all the as­sets be­long­ing to the cou­ple would pass to the sur­viv­ing spouse au­to­mat­i­cally, should one die. How­ever, this can be chal­lenged by chil­dren of pre­vi­ous re­la­tion­ships.

There are also ways of giv­ing a per­son a right to live in the prop­erty for their life­time ( usufruit or for mar­ried cou­ples, an usufruit by way of do­na­tion en­tre époux), which can be help­ful to those who want to se­cure their part­ner’s on­go­ing oc­cu­pa­tion of a prop­erty, but ul­ti­mately want it to pass to their chil­dren or an­other per­son.

Which model of own­er­ship will be best for me?

The Euro­pean Suc­ces­sion Reg­u­la­tion has given Bri­tish na­tion­als (in par­tic­u­lar those most closely con­nected with Eng­land and Wales) the free­dom to leave their as­sets as they wish when they die.

Some pre-euro­pean Suc­ces­sion Reg­u­la­tion ways of buy­ing (such as via a SCI) may no longer have the ad­van­tages they used to. Equally, buy­ing in a ton­tine may still pro­vide a cou­ple with the pro­tec­tion they want for each other, should one of them pass away, but may not be the most in­her­i­tance tax-ef­fi­cient way to own their prop­erty.

Bear in mind that the reg­u­la­tion may not be as help­ful to na­tion­als of a coun­try that also has a forced heir­ship regime.

Ul­ti­mately, the best way to own a prop­erty in France will de­pend on in­di­vid­ual cir­cum­stances. We there­fore al­ways rec­om­mend ob­tain­ing ad­vice from a cross-bor­der ex­pert and ide­ally be­fore you buy your French prop­erty.

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