Phil the Francophile

[quote user="Quillan"] I was talking to my friend again yesterday, one has to be a little tactful as you can imagine. In his case we are talking about a UK marriage, step children and the fact he is tax resident in France and declares his French house as his primary home. He has not adopted his wifes children and neither did she his. The Notair has divided up the property and furniture (which is also counted, valued and thrown in to the pot). I won't repeat what I have already said other than to say he has to pay nothing. His wifes children have 'gifted' the furniture back to him. This is not a legal thing it's just they are not interested in anything other than a few bits and bobs to remind them of their mother. Thats what has happened to this guy in real life (no dig intended to anyone) and it seems to me there are others in the same boat. In fairness I think anyone concerned should see a French lawyer (as already said) BUT don't take what they say as always being correct as it has been known that they are not always aware of new, recent laws or changes to the law. Notairs can be just as bad. There really are to many parameters that can change things to make general statements but I can only quote on the one I know about and his specific situation. All I know is I am in the same boat as my friend with a step daughter, I'm tax resident, it's my main residence and I know I can't be forced out of my house if my wife dies and I won't pay tax which is all I really need to know for myself. Once I die (after Mrs Q) I really don't give a toss who gets my share. [/quote] I couldn't agree more Quillan. What I have been quoting is the letter of the law. Notaire's do interpret the law, and they will all do so in their own inimitable fashion. From my perspective I feel it is at least sensible to know what the worst case scenario is, even if it never happens. It is true that Notaires in general are finding they are doing more to earn their money when foreigners are involved. It is reassuring to know we are not the only ones in this boat. There is a large Dutch contingent living (or trying to live) in the Gard, and they seem to have just as many problems as we do.

I was indeed suggesting that taking the usufruct in an indivision ownership requires the taker of the usufruct to compensate the other inheritors, at least in theory. There is a sliding scale of the value of usufruct, and as I have also previously said I would get to 81 before I didn't owe anything to anyone else for staying put. I am sure you are well aware that it is possible for married couples to puchase indivision which is the French standard. In that case, the surviving partner is entitled to exercise a right to stay on in the property, the usufruct. But as I have said earlier in the thread, this has a value and will be assessed. For example. A widow, with 2 children and having purchased indivision and aged between 51 and 61 would inherit 1 third of the proportion of the property owned by her late husband. The value of the usufruct between the ages of 51 and 61 is 50%, in the case I quoted the widow is entitled to 33%. She would have to make up the shortfall in loss of inheritance, ie 17% of the proportion of the value of the property that was owned by her husband. That is the theory. In reality the exercising of the usufruct negates the need to actually pay out any compensation unless the other inheritors insist on being paid, which they are entitled to do. The communaute universelle sidesteps that neatly, but is then open to other attacks. I think everyone has got my general drift now, and that is that every way you turn there is a potential for someone else to take control of your life, and I am not having that!  

[quote user="Tourangelle"][quote user="Quillan"] I spoke to a person I know this afternoon who's wife died at Christmas here in France. To confirm what I thought and Tourangelle said he can live in the house till he dies or rent it out and rent a smaller one and keep the difference. He has had to pay no tax or anything else. He has been told the same as what I read (in the LF magazine) that if he sells the house he must pass over his wifes share to her children as it was their second marriage and they both had children by their first marriages but none between them. Taking the above in to account I think this is down quite simply to the fact that the original poster is not and will not get married so obviously he will be in a different position. Before the law changed one way was to legally adopt your step children if you were married and then put a tontin clause in. [/quote] Quillian, glad you posted this, since my last post I've been talking about this to my (French) family, and the general concensus was that the marriage made all the difference! [/quote] Without wishing to protract this I am not sure what is being said here. I have never said I would not get married, indeed I have referred elsewhere in this thread to the communaute universelle which is only available to married couples. In the case of a communaute universelle, then no IHT is payable. However, a communaute universelle is open to attack by stepchildren as French courts can decide that having such an arrangement is a deliberate attempt to disinherit those step-children. This is called the action en retranchement and is a right available to step-children, but does not need to be exercised. Beware!!

Sorry this depressed you Suzy, I just wanted to share our experiences (over the last 6 years), for what they were worth. You asked about buying in your sons names. You could certainly do that, and if you or your partner died first then they would still own the place which may, or may not, be a good thing. You would avoid inheritance tax, unless one of your sons pre-deceased you. If that happened, and they did not have any children, then you would inherit their share of the property, and be laible for tax. There are other implications, and I would certainly recommend speaking to a good French lawyer about all of this.

There is a lot of stuff related to this in the thread I started, but briefly: If you buy in joint names a clause tontine in the purchase documents has the effect of disinheriting the children from your first marriage completely should you die first, and ownership passes to your wife. Your daughter would then be the only inheritor. The downside is that your wife would be liable for inheritance tax, as would your daughter ultimately. If the house is in your wife's name only, your daughter from that marriage would inherit should your wife die first, and you would not necessarily have any rights at all. As a matter of interest, we did this with our first house purchase (a holiday home in the Dordogne). My (second) wife bought the place in her name only. The notaire was quite happy to do that. I was identified in the documents, but was not party to the purchase, or the sale. That was fine for a short term thing, but we did not feel the same about a permanent move. Bonne chance

Thanks for expanding on the domicile versus residence position. Having gritted my teeth through the inheritance minefield, I was rapidly losing the will to live when I got to the domicillary rules and regulataions. Once I read that renting or buying made no difference, I gave up. Sorry if I misled anyone.

With communaute universelle you are tax exempt, ie. ownership will switch to the other party without any inheritance tax payable. When it comes to the final crunch however, the French pecking order of inheritance will apply, that is children first, then parents, brothers and sisters, neices and nephews, and if there is absolutely no-one else, then either the conditions of a will, failing that the state gets the lot. You cannot put anything in a will that appears to disinherit your relations in accordance with the above rules. Fun game isn't it!!

If you are in the country for more than 180 days you are deemed domiciled and therefore liable for tax and any other delights of residency!!  

Ouch! Can I assume you are actually living in the house and as such a domiciled in France? If so then standard inheritance laws, and taxes apply, as the shares (parts d'interet) in the SCI are assets. As there are children from a previous marriage in theory they would inherit at least a proportion of the shares as I understand it. As with any assets you cannot make a will that is designed to disinherit the children, if you do it will be ignored. If you are living in England, and using it as a holiday home then you should be subject to English Common Law as far as inheritance is concerned and your English Wills would apply, as would English Inheritance taxes, if they applied. It is possible to to insert a tontine clause in the SCI Statuts but you really would need to take advice on that. Indeed you ought to try to get proper advice on the best way to deal with the situation. My thoughts above are what I have learned, but opinions do vary.  

The point I was making is in the above text, copied below: Charge against ownership rights received If the spouse requests it, the value of this lifelong accommodation right and right to use the furniture is deducted from the other rights received from the estate, particularly in the presence of children, from the owned quarter reverting to him/her. If the value of these rights is less than that of his/her inheritance rights the spouse may take the rest from the existing assets. If the opposite is true, he/she shall not be bound to indemnify the estate. The usufruct has a value, and must be paid for.

True(ish) Quillan, but remember that usufruct has a value in inheritance terms. The life interest, allowing you to stay put, is assessed on a sliding scale, depending on age, and where the value of the usufruct exceeds your legal inheritance right you have to cough up the financial difference to stay there. As an example. If your partner died, and you had three children, and you were aged between 61 and 71, the value of the usufruct would be 50% of the total inherited value. Having three children means that they, and you would get 25% each of the inherited value. You would be liable to compensate the children for the difference between the inherited value of the property (25%) and the value of the usufruct (50%) if you wanted to stay in the house. As we seem to keep quoting a 300,000 euro value, in the case I have outlined this would mean 25% of 150,000 or 37,500 euro. In the case I quoted, which is similar to my situation, you would have to be 81 before you didn't have to pay anything to the other inheritors. Also, although you are entitled to stay in the house I do not believe you are entitled to rent it out or modernise it without the permission of the other inheritors. You certainly cannot sell it without their permission. You can stay living in the family house, but there is a price to be paid.

Touche Kathy. But remember.............. The inheritance tax is based on the assessed value of the assets and not the realised sales value. This would be payable straight away. The lady may have to wait some time before she gets a sale. Also, we do not know whether there are children or other inheritors involved, nor do we know what other assets, or indeed debts, there are involved. Messy it could very well be!

Legally Chrissie is right. If you died first your partner and his children would have no rights to the house. The rules of la reserve hereditaire would have the notaire searching for your parents, siblings, and neices and nephews for them to inherit. Inheritance tax would be payable too. You can make a will, but the conditions of any will cannot overcome la reserve hereditaire, and if they do they will be ignored. Talk to a good legal eagle before you sign anything. We did, which is why we opted out of buying at all (see my thread).

Above 1.7 million euro the rate of inheritance tax is 40%. Don't forget to add on 5% extra to the value for furniture and the like, and add in any other assets. On the Ile de Re you can get properties in excess of 2 million euro. If the unfortunate lady had one like that, her tax bill, after deducting her 76,000 allowance, and assuming she inherited half the property, would be 389,600 euro. Hardly chicken-feed. Not that there would be many of us with a property worth 2 million euro................................ yet!!

My reasons for posting were indeed only to inform. I did not expect tacit agreement. What people do, or have done is entirely up to them. I just have the feeling that so many dive in without really looking to see how deep the water is. On the subject of Capital Gains tax, I included it specifically in relation to people selling their home in France to return to the UK. My advice, last week, was that if selling up to return to the UK a notaire could take the view that the original purchase, as it had not been permanent, had been for the purposes of financial gain, and therefore assess the sale for Capital Gain. If that decision was taken it could only be appealed through a court, and the rate of charge would be 33%. As in any case, an opinion is merely that, and I pass it on for what it is worth.

With children under the age of 18 a court decides what is best for them (at your expense), and a sale can be blocked, or ordered by the court depending on the situation at the time. Referring the matter to a court is a decision made by the notaire. A clause tontine has the effect of disinheriting the children on the first death, so the above would be largely academic, and with a tontine in place you would be able to sell without any interference. You would be liable for inheritance tax which would be levied at 20% (assuming you are married). The 20% would be applied to the percentage of the property being inherited, plus 5% of the total value of the property added for furniture and other items. You are allowed to inherit 76,000 euro in property before tax is due. I did quote an example in an earlier posting where a half share was worth 150,000 euro. In that case the tax would be around 18,000 euro. Remember too that you would be liable for capital gains tax when you sold. Capital gains is levied at 33% on the profit made since buying the house, less any allowable costs and some monetary adjustments. Bonne chance!

The couple we were buying from were both in their 70s, and retired. The husband was not in the best of health and they wanted to downsize and buy something smaller in the village centre. I guess if that profile does not fit you then the notaire is not bothered. He wasn't bothered when we sold our first house in the Dordogne either. Not being 70 does not last for ever though.

We used a solicitor based in Plymouth. No problems with her location, as it can all be done by email and letter. She is French, and a qualified Maitrise Droit (Notaire to you and me), and a qualified solicitor to boot. She was excellent, but don't expect her to be anything other than honest, which is why we are no longer buying in France (see my posting under legal matters). She can and will advise on inheritance and go through the compromis to review all the conditions. She will liaise with the agent, notaire and mairie as required, and speaking the language is clearly a great asset. She advertises in FPN magazine, but if you want her details sooner, drop me an email.

There seems to be a common misconception about usufruct. Usufruct is based on a sliding scale of entitlement to life interest which is dependent on age. Usufruct has a value and is compared with the quotite disponsible to determine who inherits what, and who is entitled to do what. It is not as straight forward as saying "Oh I have usufruct, therefore I can stay in the house as long as I want without any loss or threat." If you do not have life interest then you cannot sell without the permission of the inheritors. In my situation I would have to reach 81 before I had a total life interest, and could not be affected by inheritors. As I mentioned earlier, the people we were buying from could not sell their house, even though they were BOTH alive, without the consent of their son. In that case usufruct had not even come into it.  I could not agree more though about getting good quality advice. It might not be what you want to hear (as in our case) but once the compromis is signed life takes on a whole different perspective.  

I did wonder the other day when someone might want to challenge this in the Court of Human Rights. I guess the answer is that it might come at some point but is not likely to succeed. The French make no bones about using Civil rather than Common Law, and never have done. They are used to that system, and accept it as it is, just as we accept ours. So any challenge is likely to come from an etranger, which would weaken it straight away. The response would probably be "if you don't like it, go back to where you came from".

Catalpa, you must be psychic. The house we were trying to buy WAS on a hill overlooking a valley in Southern France and it WAS outside the village!! Half an hour from two airports, pool planned, lots of ground, quiet location. Perfect or a nightmare in waiting?

Here's a summary of the purchasing options. This may be teaching my Grandmother to suck eggs, but I think it shows what we have found, and that the grass is slightly less green than people think. Indivision - the commonest form of purchase. Inheritors have control and can force a sale, or prevent one. Tax due on first death the top rate being 40%. Usufruct -  a sliding scale of "life interest" is applied which depends on the age of the surviving partner. Inheritors still have a right to the balance of the life interest. In my case I would have to be 82 before I was safe from having to pay out to inheritors. PACS - Similar to communaute universelle, except tax is payable, but at reduced rates. Good for non-marrieds living in France. Communaute universelle - Survivor has the right of occupancy, but cannot sell without permission. No taxes payable. Clause tontine - All inheritors disinherited. Can be challenged especially in the case of a substantial age difference between partners, and in any case liable for tax between 20% and 60% on first death. SCI - has ongoing tax and maintenance commitments and is not ideal for residents. Can be challenged. Bear in mind too, that when a property is sold, whatever the circumstances, Capital Gains tax is payable at the net rate of 33%. This can be offset with maintenance and improvement costs, and there is a "monetary erosion" applied, but it takes 22 years ownership on average to escape without any tax being due. We don't fancy any of those. If anyone knows of some other way to buy a house without these tangles I would be delighted to hear it.

We could go on like this for days! Of course having a communaute universelle gets round the tax issue, but then re-opens the inheritance and who has control issue. The answer to that is almost anyone, however distantly related, can either force you to sell up, or prevent you from doing it. You do not have control of what happens. To answer the other point, yes, you can own a property through a company. you need to maintain company records, have an annual meeting and submit returns to the tax authorities each year. If you do not keep on top of that the company can be declared illegal by the tax authorities and dissolved. Furthermore, there are arguments about the inheritance of shares in a company, and that can be challenged in a court. Believe me, we have looked into every nook and cranny of inheritance and ownership, and this is not a decision we have taken lightly. We sold our original holiday home in the Dordogne with plans to move further south and retire to the Gard. This has been on the go for 6 years, and it was with very great regret that we have decided not to do it. As I have repeated often, I am not prepared to hand over control of my life to someone else, nor am I prepared to leave a loved one to a potentially miserable fate. There are other places just as nice, where we can live our lives our way, not someone elses.  

Sorry Dotty, I think you missed the point again. The survivor pays the 60% (if not married), and that could make quite a big hole in any nest egg you might have salted away. Don't forget too that we are not just talking about the house. The Inheritance laws apply to all property. If you do not have a communaute universelle then all bank accounts, savings, furniture and anything else is deemed to be part of the inheritance, and therefore taxable. I hope your Cayman Islands account is well hidden, as this applies to world-wide assets.

I think you missed the point. The point is you cannot really live the dream if someone else is pulling the strings. Perhaps you are blinkered, perhaps you are happy. I am not prepared to hand over control of my life to anyone else be that a tax authority or a member of my family, and this is only partially to do with a death. Not necessarily mine. How can two of you live a dream knowing that one of you faces a possible nightmare at what is probably the lowest point in your life anyway? We did get as far as a compromis on a property near Nimes, and it was whilst going through that process that all the doubts crept in. One of the things that triggered off the doubts was that the old couple selling the house had signed the compromis, and so had their son. Apparently as they were down-sizing, and it possibly affected his inheritance, he had to agree to the sale and be a party to the compromis, although he was not a part owner, and had not been involved in the purchase. That is not for me! Don't forget too that this is not just about children. There is a pecking order in French inheritance, and someone somewhere will be given the power to decide your future. Parents, siblings, neices and nephews, uncles and aunts, cousins, and so the net spreads wider. If all else fails, the state takes over for your own good. Nice! As for fulfilling dreams? We wanted the lifestyle, the friendliness and the climate. I am sure we will find it elsewhere, but on our terms and not someone elses.