Frequently Asked Questions - 5
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Tontine ownership
It is possible to get round French succession rules if you are buying property jointly. When you bought your house in England, you probably bought it jointly with your husband or wife. Your solicitor will have explained to you that there are two ways of owning property jointly. One is that on your death the property passes automatically to then survivor (in English 'joint tenancy', in French en tontine) and the other is that each of you own a part of the property which you can deal with separately (in English 'tenancy in common', in France en indivision). You probably chose the former method and your solicitor would probably have been very surprised if you had chosen the other method.
In France, the same two ways of jointly owning property exist, though for quite different reasons. The French almost always use the en indivision method for the very reason which makes it usually disastrous for the English to do so: it does not avoid the normal French succession rules. The English should (subject to advice) always buy en tontine which is how they would buy in the UK and the property will pass automatically to the survivor.
It is quite impossible to say how many English husbands and wives whop have not been properly advised on this point are horrified to learn that they have made the wrong choice. In fact, usually they have not made a choice at all but have signed papers prepared by a notaire who assumes that English law is the same as French law and that all English couples buy jointly in the same way as French couples. Usually, it is far too late to do anything about it except at great cost. If you are buying jointly, get advice from a lawyer who knows English and French law and who, if the circumstances require, will ensure that the notaire does the right thing.
It is worthwhile giving an example so that you may see how important this is. Remember that if you are not prepared for it, the problem will arise just at the moment when one is least able to cope with it i.e. on the death of a husband or wife. Take the following situation, which is not unusual.
Mr and Mrs A are married. They have one child. Each has been previously married. Mr A has two children by her previous marriage and they now live with their mother who has remarried. Mrs A had one child by her previous marriage who lives with Mr and Mrs A. Some of the children are under 18 and some are older. Mr and Mrs A have bought a holiday home in France for FrF 750,000. They have bought it by the standard French method of joint ownership (en indivision). Mr A dies. Mrs A owns one-half of the house as her own property. Three-quarters of Mr A's half share is divided among his three children (by his existing and previous marriage) and one-quarter goes, if his will says so, to Mrs A At best, therefore, Mrs A has five eighths of the house and her joint owners now include children whom she may never have known and with those of whom are under 18 she can come to no legal arrangement.
It is true that arrangements can be made so that Mrs A can be given a life interest in her husband's share so that she would own one-half outright and one-half she can use for as long as she lives. This is, however, hardly a situation which Mrs A wants to learn of for the first time on the death of her husband, She may well have assumed that because her husband's will in England leaves everything he has to her, she now owns the whole of the house. She is mistaken, however, because French law overrides that will.
If Mr and Mrs A had bought en tontine none of this would have happened. On the death of one of them, their holiday home would automatically have passed to the survivor.
It is true that this method of joint ownership may involve the payment of French inheritance tax whereas the other method might avoid it. Usually, the amounts involved are only a small price to pay to avoid the confusion caused by the imposition of the French law of succession.
There are notaires and others who say that there are dangers in using the tontine method because children who have been 'cut out' can claim to be 'cut in'. Take courage from some recent cases on this point which say that it is almost impossible for children to succeed if care is taken and the documentation is correctly prepared. This applies to any Power of Attorney given by the buyer and to the acte de vente itself. It is worth taking the right advice to ensure that this happens.
There are at least two other methods of circumventing French succession rules. Only the most competent advice can establish if either may be suitable for you. As a general rule, unless your family circumstances warrant it or you are trying to get out of a very difficult succession situation into which you have been put through lack of advice on a purchase, neither of these methods should be indulged in for properties worth less than £100,000.
Do not use an offshore company to buy French property or, worse still, buy the shares in a company which already owns French property. The notaire may not understand the implications but an English lawyer and the French tax authorities will. For instance, the company will be liable to a series of heavy taxes which it may never have paid and thus you may be buying a past and future tax liability
Legal advice should take into account both French and UK law. We therefore strongly recommend that you consult a French legal specialist to deal with your individual concerns. Stephen Smith of Stephen Smith (France) Ltd (On contact quote ref FPSAMJ) who is an internationally recognised expert in this field.
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Can I buy through a company?
Yes. However, please do not use an offshore company to buy French property or, worse still, buy the shares in a company which already owns French property. The notaire may not understand the implications but an English lawyer and the French tax authorities will. For instance, the company will be liable to a series of heavy taxes which it may never have paid and thus you may be buying a past and future tax liability. An SCI (French property-holding company) is usually the preferred alternative.
Legal advice should take into account both French and UK law. We therefore strongly recommend that you consult a French legal specialist to deal with your individual concerns. Stephen Smith of Stephen Smith (France) Ltd (On contact quote ref FPSAMJ) who is an internationally recognised expert in this field.
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How can I reduce the effect of French succession law?
It is possible to get round French succession rules if you are buying property jointly. When you bought your house in England, you probably bought it jointly with your husband or wife. Your solicitor will have explained to you that there are two ways of owning property jointly. One is that on your death the property passes automatically to then survivor (in English 'joint tenancy', in French en tontine) and the other is that each of you own a part of the property which you can deal with separately (in English 'tenancy in common', in France en indivision). You probably chose the former method and your solicitor would probably have been very surprised if you had chosen the other method.
In France, the same two ways of jointly owning property exist, though for quite different reasons. The French almost always use the en indivision method for the very reason which makes it usually disastrous for the English to do so: it does not avoid the normal French succession rules. The English should (subject to advice) always buy en tontine which is how they would buy in the UK and the property will pass automatically to the survivor.
It is quite impossible to say how many English husbands and wives whop have not been properly advised on this point are horrified to learn that they have made the wrong choice. In fact, usually they have not made a choice at all but have signed papers prepared by a notaire who assumes that English law is the same as French law and that all English couples buy jointly in the same way as French couples. Usually, it is far too late to do anything about it except at great cost. If you are buying jointly, get advice from a lawyer who knows English and French law and who, if the circumstances require, will ensure that the notaire does the right thing.
It is worthwhile giving an example so that you may see how important this is. Remember that if you are not prepared for it, the problem will arise just at the moment when one is least able to cope with it i.e. on the death of a husband or wife. Take the following situation, which is not unusual.
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Mr and Mrs A are married. They have one child. Each has been previously married. Mr A has two children by her previous marriage and they now live with their mother who has remarried. Mrs A had one child by her previous marriage who lives with Mr and Mrs A. Some of the children are under 18 and some are older. Mr and Mrs A have bought a holiday home in France for FrF 750,000. They have bought it by the standard French method of joint ownership (en indivision). Mr A dies. Mrs A owns one-half of the house as her own property. Three-quarters of Mr A's half share is divided among his three children (by his existing and previous marriage) and one-quarter goes, if his will says so, to Mrs A At best, therefore, Mrs A has five eighths of the house and her joint owners now include children whom she may never have known and with those of whom are under 18 she can come to no legal arrangement.
It is true that arrangements can be made so that Mrs A can be given a life interest in her husband's share so that she would own one-half outright and one-half she can use for as long as she lives. This is, however, hardly a situation which Mrs A wants to learn of for the first time on the death of her husband, She may well have assumed that because her husband's will in England leaves everything he has to her, she now owns the whole of the house. She is mistaken, however, because French law overrides that will.
If Mr and Mrs A had bought en tontine none of this would have happened. On the death of one of them, their holiday home would automatically have passed to the survivor.
It is true that this method of joint ownership may involve the payment of French inheritance tax whereas the other method might avoid it. Usually, the amounts involved are only a small price to pay to avoid the confusion caused by the imposition of the French law of succession.
There are notaires and others who say that there are dangers in using the tontine method because children who have been 'cut out' can claim to be 'cut in'. Take courage from some recent cases on this point which say that it is almost impossible for children to succeed if care is taken and the documentation is correctly prepared. This applies to any Power of Attorney given by the buyer and to the acte de vente itself. It is worth taking the right advice to ensure that this happens.
There are at least two other methods of circumventing French succession rules. Only the most competent advice can establish if either may be suitable for you. As a general rule, unless your family circumstances warrant it or you are trying to get out of a very difficult succession situation into which you have been put through lack of advice on a purchase, neither of these methods should be indulged in for properties worth less than £100,000.
Do not use an offshore company to buy French property or, worse still, buy the shares in a company which already owns French property. The notaire may not understand the implications but an English lawyer and the French tax authorities will. For instance, the company will be liable to a series of heavy taxes which it may never have paid and thus you may be buying a past and future tax liability
Legal advice should take into account both French and UK law.We therefore strongly recommend that you consult a French legal specialist to deal with your individual concerns. Stephen Smith of Stephen Smith (France) Ltd (On contact quote ref FPSAMJ) who is an internationally recognised expert in this field.
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How can I remain anonymous?
Please contact Stephen Smith (France) Ltd (quote ref FPSAMJ) for further information.
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What about group purchases?
In recent years, thousands of non-residents have bought a property in France to escape from cold winters and wet summers. For many, their personal use of the property is a source of considerable pleasure. Although property prices in France are still generally low, and purchase loans are readily available, many potential buyers are discouraged from purchasing French property for two min reasons. Firstly, they do not want to feel tied down to the same property each year when there are other countries or parts of France to explore. Secondly, their available holiday time is often limited to two or three weeks in the summer and, although friends and relatives may occasionally visit the property, it will otherwise remain unoccupied for the rest of the year.
The clear choice for new buyers wanting to enjoy the benefits of owning and occupying property in France for limited periods only with the reduced costs that such a purchase can bring is to use a non-time sharing method of company ownership (called a société civile immobilière d'attribution à temps partagé or SCIATP) which allows the owners to share ownership with friends or others who have similar interests. As explained below, the use of such a structure can also have significant French succession law-avoidance advantages.
The scheme can apply to a house or part of a house (for example, a flat in a block). A property can be brought within its scope either by being bought by an SCIATP previously formed for that purpose, or a property owned by one or more owners can be transferred to an SCIATP.
This is also the most satisfactory method for an existing owner wishing to reduce his capital burden whilst retaining an interest in his property. For example, the SCIATP acquires the French property from the original owner who then offers for sale as many shares as he wishes (e.g. 75% if he wants to be able to occupy the property for about three months in every year). French law provides precise rules as to the way in which the property must be managed, how management costs are dealt with, the rights of each occupier vis-à-vis each other and their rights to deal with their occupancies and generally everything which is necessary for the enjoyment by these shareholders of the property by the company.
The right to occupy the property at agreed times stems from the ownership of shares in the company. The basic rules laid down by French law are strict since they are intended for the protection of the public and cannot in most cases be varied.
The price for the shares will depend not only on the value of the property but also on the periods in the year in which the shares sold give rights to occupation. However, since these periods are likely to be spread over the year over periods of more than (say) six weeks at a time, it is probable that the price for all of the shares will be more or less the same. The sale by the original owner of shares will, of course, give rise to French capital gains tax, but unless the property is of recent acquisition and the owner has benefited from an unusual rise in the French property market, this tax is not likely to be high if it exists at all.
The equivalent of the Articles of Association of an English company are the statuts of an SCIATP. All the basic rules relating to the use of the property are set out in this document. These will cover, in addition to the dates when the property is occupied by shareholders (which can be varied by consent of all the shareholders), the important provisions relating to the transfer of shares during a shareholder's life and on his death.
The normal French rule is that transfers between existing shareholders may be made freely as may transfers on a death to heirs entitled to inherit, or spouses, but this can be varied since the shareholders will be subject to English and not French succession law. Otherwise, the body of shareholders controls who can become shareholders and such a decision requires at least a majority or unanimous vote.
French law specifically requires that shareholders must have the right to let the property they occupy during their period of occupation. The shareholder remains liable to the SCIATP for his tenant's default.
Rules for the holding of meetings of shareholders and for the passing of resolutions by correspondence and similar management procedures follow quite closely what is common form in English companies.
Overall management is in the hands of the gérant who basically takes the place of a director of an English company. He may be appointed or removed by a simple majority vote of the shareholders but the statuts can provide for a larger majority or a unanimous vote. He can, but need not, be a shareholder. It is his duty to act on behalf of the SCIATP subject to such limitation as may be placed on his powers.
The gérant is responsible to report to the shareholders when the annual accounts are submitted. The SCIATP will be liable for taxe foncière (property tax) and taxe d'habitation (local authority tax) but, unless it has income - which is unlikely - for no other French taxation.
He is assisted by an Executive Committee composed of shareholders (the number is fixed in the statuts) whose task is to advise the gérant or the shareholders on all matters relating to the management of the SCIATP which either have been referred to it or which it enquires into of its own volition. It is the recipient of the SCIATP's accounts and has a right to call for production of all documents and papers affecting the SCIATP.
The cost of maintaining and managing the French property will, as with these taxes, be shared out among the shareholders in proportions which will reflect the length of each period of occupation and presumably the date in each year. The gérant arranges for the collection from each shareholder of his share of expenses and, if needs be, may ask for payments on account in advance. There are rules to ensure prompt payment.
Unless the finances of an SCIATP attain a fairly high figure - not likely where only a single house is involved - it is not necessary to appoint auditors, but in that case the SCIATP must appoint an independent qualified person who is not a shareholder to prepare the annual accounts.
The use of an SCIATP is also a useful tool to avoid the adverse implications of French succession law. In brief, French succession law applies to all land, houses and flats in France irrespective of the nationality, domicile or residence of the owner. This put simply, means that children have the absolute right to inherit but surviving spouses have no such rights. Furthermore, if you do not structure joint ownership of French property through an SCIATP or a similar French company, the two alternative methods of joint ownership re likely to cause problems. One method (indivision) was created to deal with property inherited by various members of the family and is quite unsuitable for property which is bought for sharing with other people. The other method (tontine) has the effect of the property belonging to none of the joint owners until the death of all except the last survivor, who then acquires the whole of the property. This is clearly not suitable for owners who are strangers to one another.
The purchase and transfer of French property and the formation of companies in France is the sphere of a notaire practising on French soil. However, any person interested in making use of this scheme either as a means of selling part of his interest in his French property or of buying into such a property on such a basis should consult lawyers in England expert in French legal matters since their residence and/or domicile in England makes this highly desirable.
We therefore strongly recommend that you consult a French legal specialist to deal with your individual concerns. Stephen Smith of Stephen Smith (France) Ltd (On contact quote ref FPSAMJ) who is an internationally recognised expert in this field.
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What happens to the property when I die?
In England, you are free to dispose of your estate as you wish. In France, you are not. French succession law always applies to French immeubles and your English will or trust is of no effect. This rule applies even if your permanent home is in England and you spend only a few weeks in France every year.
However, this need not keep you from buying property in France, because if things are properly organised, there is no reason why you should not quite simply avoid the rule.
In many cases a simple and cheap solution is to make a French will. Your English will should also be reviewed at the same time. If you do not have a will, French law makes almost no provision for a widow(er) or surviving partner. Depending on your will, the property will usually go to your children (but not your spouse) or if you don't have any, to your siblings and parents.
Legal advice should take into account both French and UK law. We therefore strongly recommend that you consult a French legal specialist to deal with your individual concerns. Stephen Smith of Stephen Smith (France) Ltd (On contact quote ref FPSAMJ) who is an internationally recognised expert in this field.
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What is an usufruit?
A life interest in French property.
Legal advice should take into account both French and UK law. We therefore strongly recommend that you consult a French legal specialist to deal with your individual concerns. Stephen Smith of Stephen Smith (France) Ltd (On contact quote ref FPSAMJ) who is an internationally recognised expert in this field.
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What is the 3% annual tax?
A 3% annual tax applies to all companies (French or otherwise) having a head office or centre of administration in France. However, with proper timely advice there are simple ways to avoid payment of this tax.
Legal advice should take into account both French and UK law. We strongly recommend that you consult a French legal specialist to deal with your individual concerns. Stephen Smith of Stephen Smith (France) Ltd (On contact quote ref FPSAMJ) who is an internationally recognised expert in this field.
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Where can I get good advice?
A notaire does not usually perform an advisory function. Do not therefore expect him to volunteer any advice or indeed report to you about the different methods of ownership which can avoid French succession law problems and taxation.
Legal advice should take into account both French and UK law. We therefore strongly recommend that you consult a French legal specialist to deal with your individual concerns. Stephen Smith of Stephen Smith (France) Ltd (On contact quote ref FPSAMJ) who is an internationally recognised expert in this field.
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Who can I leave my French property to?
To make things simple, assume that you are married with a wife and a child. Under French succession law you would have to leave one-half of your French estate to that child. If you had two children, the proportion would be two-thirds and if you had three or more children, it rises to three-quarters. You would be free to deal with the remaining balance as you wished and may or not as you wish leave it to your widow. However, there are ways of 'cutting in' a spouse to childrens' shares.
Legal advice should take into account both French and UK law. We therefore strongly recommend that you consult a French legal specialist to deal with your individual concerns. Stephen Smith of Stephen Smith (France) Ltd (On contact quote ref FPSAMJ) who is an internationally recognised expert in this field.