Why we are NOT buying in France

[Phil the Francophile]

After much soul searching, and a very intensive few weeks activity and consultation we have decided not to buy in France. That is a great shame, but the more we dug into the why's and wherefore's of Napoleonic inheritance rules, and taxation, the less we wanted to do it. So the dream of retiring to sunnier and very friendly climes has gone.

I know many of you are content to take the chance, but we could not see it was reasonable to hand our fate to others. I will try to explain, for there may be things in here that others are not aware of.

First, our situation. My partner and I are both divorced, and have not, as yet, re-married, I have two children from my former marriage and my partner has three from hers. We looked very carefully at the options, and employed an excellent French solicitor based in Plymouth, who is also a Maitrise Droit for advice.

Indivision is the standard French way of house purchase, where each party owns a share. On the death of the first party the ownership of their part is split in accordance with inheritance laws, with the step-children taking a percentage of that share. Without any protection, the step-children can force the sale of the property to realise their share, and can block the sale of the property if they do not want to take their money immediately.

Indivision can be circumvented by passing on the usufruct to the surviving partner, or by insertion of a clause tontine in the final act of purchase. Passing on the usufruct means the surviving partner can remain in the house, but still needs the permission of the step-children to sell it. So in the case of a widow(er) wanting to sell up and return to England this can only be done with the step-children's permission. At that stage, if it is sold, then the step-children will receive their share. With a clause tontine the effect is to disinherit the step-children, which removes their rights to be obstructive, or to force a sale. A will is then needed to ensure that ultimately they do not lose out on their reasonable entitlement.

In any event, either with a donation entre epoux or a clause tontine inheritance tax is payable on the death of the first partner. Outside of marriage this is levied at 60% and if married at 20%. If a property was valued at 300,000 euro, and the shares were half each, then 150,000 would be assessable for tax. There is a tax free element of 76,000 euro, but whilst that is deducted, 5% of the total value is added as "other assets", ie. furniture. In the case I have quoted, a 300,000 euro house a tax bill of around 17,800 euro would be payable for a married couple and 53,400 euro for an unmarried couple.

It is possible to avoid paying inheritance tax by adopting a communaute universelle where the property is deemed to be in joint ownership and passes automatically to the surviving partner. However, the succession rules mean that the children still have the right to force a sale, or block a sale, depending on their mood at the time.

It is not possibe to combine a clause tontine with a communaute universelle. We tried to get that past a Notaire in France, but he, and the tax people, slapped us down very sharply. It was a disinheriting, tax avoiding scam in their eyes. How true!!

As an aside, another curiosity was the French Notaire's inability to get to grips with the concept of a joint bank account! To purchase with a clause tontine we were required to prove how much each of us at put into the purchase. It was suggested that we opened separate bank accounts to achieve this!!!

From our personal perspective, we were not happy to have control over our future handed over to our children in this way. Of course we love them, and we hope they love us too. But can anyone guarantee things will never change? Given that the only alternative was to be faced with potentially crippling tax demands on the death of one party, we decided to give it all a very wide berth.

For those of you brave enough to take the risk, good luck!!

 

[Ysatis]

I read your post with much interest. If you don't mind, what is the name and address of the French solicitor in Plymouth as it might be a handy contact to have in my address book.

Regards,

[Phil the Francophile]

As a post-script, the reason for requiring separate bank accounts for a tontine arrangement is to ensure that each purchaser can prove that the payment was financed by each in equal share, should this become an issue at the death of the first spouse/partner.  This is based on the grounds that can be raised by the children of the first deceased spouse to declare a clause tontine invalid.  If a purchase en tontine is financed only by one purchaser, then under French law if the heirs of the first deceased spouse could prove this, then they would have a ground to have the tontine set aside.

And the best of British luck!!

[Catalpa]

I think this also highlights why, in some circumstances, it is very wise to employ a UK-based solicitor who is an expert in French property law and can therefore advise on situations such as this. I think it would be very difficult to get this level of clarity from a Notaire even if the Notaire was particularly helpful and spoke (some) English.

Sorry that France doesn't work for you... how about Spain? [+o(] [:)]

[Cassis]

That old Napoleon's got a lot to answer for.  Good job we're both still on our first marriage and don't have any kids!

[ali-cat]

I second what Cassis wrote!!  I just have to worry about Mark's dad landing on the doorstep, if something happens to Mark!!  [:-))]

[Catalpa]

[:-))]

I didn't think I should finish off my note of commiseration to Phil with...

exactly what you said Cassis and Ali! Well, except TOH isn't Mark. Obviously. [blink]

[zeb]

Well, luckily we're in France and have been for four years. We both have children from previous marriages and married soon after moving to France on the advise of the notaire (and also because we had been together 15 years and love each other!!!). We have a French marriage contact but of course, the surviving children may wish to force a sale of the property, or have their share on the sale of the property etc etc in the event of a death.

All this worry about inheritance, was not a good reason for us to stay in Britain. We were mid forties when we moved out here and maybe have another 30 years (or maybe not!) at least. We knew what the French system was like so we married as the safest way to ensure the partner vcan remain in the property. But, I really think that our children wouldn't have it any other way!!

We just couldn't risk not living the life we want NOW just in case something happens to one of us sooner rather than later. And if it does, so be it. I find it really sad that folks are so worried about who inherits what - why have children in the first place?

[Loiseau]

Of course, one hopes that harmonious relations with one's children will continue indefinitely.  But my notaire pointed out that he had seen problems 10 years down the line on occasion, when children have got married and then - sadly - found themselves enmeshed in bitter divorce proccedings when the "in-law" partner has tried to force a sale in order to extract whatever money he/she felt was their due.

Angela

[Suze01]

Regarding the worry over one partner dying and then the inheriting children forcing a sale, why not put it in your wills that the surviving partner has usufruit over the property for their liftetime?

[Unknown]

I second what zeb says, why are folk so preoccupied with what's going to happen after their deaths.  I know one has to 'be prepared', but to not live your dream because of what may happen when your on the other side, is very sad.

Perhaps I won't go running today incase I collapse and peg it.

I don't know much about the whys and wherefores of the French legal system, we have 3 kids and are in our first and only (hope) marriage, I'm not even sure what kind of clause if any we have on the ownership of our house and frankly I'm not that interested.  Perhaps I am too blinkered, but I am here living my dream.

We make our own choices and I'm sorry the original poster has felt they cannot forfill theirs

 

 

 

[Catalpa]

[quote user="Dotty Trois"]

I second what zeb says, why are folk so preoccupied with what's going to happen after their deaths. 

[/quote]

 

Not their deaths but after a death. Immediately after the death of a partner, the prospect of having children (but adults) squabbling over whether the surviving partner has the right to continue living in what has been your joint home isn't appealing and French inheritance law allows precisely that. To me, the prospect is horrifying so I can see that it is something that some people will have to take into account. I'm just glad I don't.

[Phil the Francophile]

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.

[Unknown]

Phil

I do understnd your concerns and sympathise with them, its just I guess you have to do what's best for you.  I had spent 5 years trying to find/buy a house in France, then it took another 6 months to move here.  Yes I had doubts about different things and every day I learn something new not necessarily good things either, but I would not change any of it.

I suppose I have faith in my family, that they will do the right thing by me or my husband when the time comes.  As for paying tax, well not alot I can say about that, no one likes paying it but its a fact, why does it matter once one is gone, after all, you can't spend 60% when you're behind the pearly gates.

[Phil the Francophile]

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.

[ali-cat]

Sorry Phil,  but I agree with Dotty.

If the surviving partner has to pay 60% (if not married) - get married!!  Mark & I have been married for 15 years - but will have to change our marriage regime, when we move over.  You say "if you do not have a communaute universalle" - get one!!  A financial advisor has talked us through the French system - & there are ways of sorting out all inheritance problems. 

It may involve a bit of extra work & organising - but it's worth all the time & effort - I just hope my wedding dress still fits & Mark says "Yes" again!! [:)]

[Beryl]

Isn't it possible to own your house as a 'company' to legally bypass some of these inheritancy problems?

[Phil the Francophile]

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.

 

[Will]

The SCI (company purchase) route only really works for holiday homes, i.e. if you are not French resident. There are possible unfavourable tax implications so it is a vehicle that has to be used with care and then after following good advice. 

[Owens88]

[quote user="Phil the Francophile"]

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. [/quote]

 

So, a shareholders meeting (on the Ramblas, in Morocco, whatever), written up properly and a yearly dialogue with tax people (which we all have anyway). How daunting is that ?

[Phil the Francophile]

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.

[hastobe]

A company is not a good idea if you are UK resident.  You will be deemed to have a benefit in kind for those periods when the property is available for your use (or the use of your family).  The benefit in kind is calculated at 20% of the market value of the property.  For exanmple - assume you have a property worth 300,000 euro and that is let out by the company to third parties throughout the months of May to the end of September with the exception of three weeks in the summer when it is used by you. This means it is available for you or your family to use for approximately 70% of the year (whether or not you use it is irrelevant).  Your tax liability is calculated at 20% of the market value of 300,00 euros prorated for the period it is available.  So you will be taxed on deemed earnings of 42,000 euros.  On the assumption you are a 40% tax payer this is an annual tax bill of nearly 17,000 euros or £12,000.

Not a smart move!

Kathie

[SaligoBay]

True, but Phil has a point.

My father-in-law died 10 years ago, and my mother-in-law has moved house 3 times (within England) since then.   My French neighbour couldn't understand this, she said "but what do the children think, do they not mind?".   She was shocked to the core to find out that the children - my husband and his sister - have really no say at all in what their mother does with HER HOUSE.

You see, should my neighbour's husband die first, she will be allowed to stay in the house until her own death, but only because that's the contract they have.  It won't be her house, she won't be allowed to downsize to somewhere more suitable for a single person or anything like that, not without a load of legal process involving the children.  In effect, she becomes her children's tenant.  And as someone said, it only takes one distant in-law to have a "need" for cash at some point, and voilà, surviving partner is in the merde! 

Sure, it's a risk I can live with.  But if this is Phil's particular stumbling-block, then that's up to him.   Mine would be the weather - if the weather was like the UK, I'd rather be in the UK, because there are no other advantages for me in France.  No decent beer, and I don't like jazz!  [:D]

 

 

 

 

 

   

[Catalpa]

[quote user="SaligoBay"]

True, but Phil has a point.< snip >

...she won't be allowed to downsize to somewhere more suitable for a single person or anything like that, not without a load of legal process involving the children.  In effect, she becomes her children's tenant.  [/quote]

Yep. So a slightly different slant, using Phil's situation (since he posted it and I'm sure he won't mind me painting an uncomfortable scenario with it [:$]) but I'll change the names to make it a bit less personal[:)]: 

Fred's partner dies. Fred would really like to move back to the UK. Fred's partner's children (of which there are 3) decide they really don't want step-dad selling "their" jolly nice holiday home on a hill overlooking the valley in southern France. Even if he's no longer driving and can't get up / down the hill to the village. After all, their share of the sale proceeds won't buy them anything half as nice. And Mum would have wanted her grandchildren to enjoy the house, wouldn't she?  They block the sale. Fred, unless he has substantial assets, has to remain in France for the rest of his life, housebound in a property that is totally unsuitable for him.

This is an imaginative nasty case scenario. And perfectly possible under French inheritance law. Phil's post did strike a chord with me as the inheritance thing (as French residents) was something we looked into carefully. TOH has an "interesting" sister and any control that she might have had over my life post-TOH's death would not be a good thing.

 

[Phil the Francophile]

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?