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Expat Investor : November 2008
PROPERTY INVESTMENT How should you own your French property? There are three ways to own a property in France. Here, David Franks, Chief Executive of Blevins Franks, explains what each method entails so you can work out which is right for you. There are three main methods of owning French property with vari- ations in each. The advantages/disadvantages of each depend on your specific circum- stances. You should research the various options before you buy a property, since it is not always possible to make changes later. While French succession tax has been abolished between spouses and PACS ((Pacte Civil de Solidarité,a form of civil partnership available to same and opposite sex couples) partners on assets transferred on death, France still applies succes- sion law. French assets devolve first to any natural and adopted children of the deceased in preference to a surviving spouse, including chil- dren from previous relationships. These rules also apply to non- residents in relation to French property in personal ownership, and can also apply to properties in company ownership. Joint ownership For most married couples who do not have children from a previous relationship, the simplest and most economic solution is to buy in joint names and sign a community mar- riage contract. The community marriage con- tract allows jointly owned property to pass to the surviving spouse on the first death without the inter- vention of French succession law. You simply register your mar- riage contract as régime de la commu- nauté des biens with a clause attribut- ing the whole of the community to the surviving spouse and the prop- erty will pass to the survivor. renounce their right to challenge the arrangement. Such a renouncement can be complicated to arrange. There are two basic forms of joint ownership aside from the community marriage regime: indivision and tontine. If you buy en indivision, each half is seen as separately owned by “For most married couples who do not have children from a previous relationship the simplest and most economic solution is to buy in joint names and sign a community marriage contract.” You need to be French resident or a French national to use this method for all assets, but it can be utilised for French properties even if you are non-resident. The contract does not have to have been put in place on pur- chase and so can be applied to existing properties you already own, though you would normally set it up on purchase if you are aware of the option, since it is cheaper to do so. It is not effective against chil- dren of earlier relationships unless your current spouse has legally adopted them or they agree to each spouse and is separately inheritable under French succes- sion law. If you buy en tontine, the survivor takes the property (or shares in a company, if they are owned en ton- tine) and French succession law is by-passed. However children can challenge the tontine arrangement if they feel they are being disinherit- ed. The clause must be inserted into the purchase contract and cannot be added at a later date. Sole ownership This may be advantageous in cer- tain family circumstances where one party has children and the other does not. The children of the partner who dies first will have no entitlement to the property if the other owns the property. One downside is that if you would like to pass assets to your partner’s children, a much higher rate of tax will apply (60% if there is no legal relationship between the children and you). Likewise, if you are not married to your partner and have not entered into a PACS agreement, if he/she inherits the property on your death he/she will have to pay 60% on the value inherited. If you gift half or all the prop- erty to your spouse or PACS part- ner before death, succession tax will be applied on assets over €76,988. Putting the property in the names of your adult children is usually not sensible unless you have a short life expectancy. UK domiciles should seek UK inheri- tance tax advice on this step. Company ownership Ownership via a corporate struc- ture is generally more expensive to set up and administer. French tax is payable on income or gain derived from the property, and there will be personal taxes on extraction of profit from the com- pany. In certain circumstances it can however be advantageous – for example, for a group of people buying the property together or children outside the marriage. This structure is only of benefit if you do not become French resi- dent, and if the property is not to be let. An SCI is a special type of French company created to hold property. Normally this type of company is transparent – the shareholders are effectively treat- ed as if they own the property personally for income tax, capital gains tax and wealth tax purpos- es. It is most beneficial for UK residents who wish to avoid French succession laws, but should not be used if you let the property furnished, or the compa- ny will be trading in any way, since this will make it subject to French corporation tax. A UK company owning French property will pay UK corporation tax on profits generated from renting or selling it. Corporation tax will also be due in France on the same profits, although credit will be given in the UK for any French tax paid. An offshore company in a ‘tax haven’ is subject to an extra French tax charge of 3% of the value of the property each year. www.blevinsfranks.com November 2008 ? EXPAT INVESTOR 23