France Inheritance Planning – Some Important Options To Consider

In the past, British and Irish residents wishing to buy holiday homes in France jointly with a partner often found it advantageous to purchase the property either ‘en tontine’ or through a company structure known as a Société Civile Immobilière, or SCI.

Recent changes to France’s inheritance rules have made it less necessary for joint property owners to resort to these methods to protect the interests of the surviving partner, but there are still circumstances in which they may be the best option. sortie indivision

Joint Ownership
Until recently, joint ownership of property in France was fraught with complications, particularly with regard to succession. French inheritance laws offered very little security for the surviving partner, who risked being heavily taxed or even being forced to move out of the family home. However, one recent change has been to give the surviving spouse greater protection. Now, even in circumstances where the rights of the deceased spouse’s protected heirs prevent the surviving spouse from becoming sole owner, he or she can no longer be compelled to move out if the heirs of the deceased wish to sell the property.

Adding The Clause d’Attribution Intégrale
Another very welcome recent change has been the abolishment of tax on inheritances between spouses or PACSd partners. This means that couples can, if they so wish, arrange things so that one partner becomes sole owner after the death of the other, without being taxed on the value of the deceased’s share of the property as was the case previously.

Couples can adopt the French marriage regime of communauté universelle and can then add a clause to the purchase contract to specify that the surviving spouse will inherit their partner’s share of the property (clause d’attribution intégrale). A potential obstacle here, though, is that the notaire may refuse to insert the clause d’attribution intégrale if there are children from previous relationships, as this clause would conflict with the legal inheritance rights of protected heirs. In cases where the partner who dies first has offspring, who are not protected heirs of the surviving spouse, these children would lose their inheritance, which is unlikely to be sanctioned by a notaire.

Ownership En Tontine
The ‘tontine’ clause, pacte tontinier or clause d’accroisement, is traditionally much beloved of non-residents jointly purchasing French property. Essentially, it means that when one partner dies, ownership of the property passes to the surviving partner and not to the protected heirs of the deceased. The outcome is therefore much the same as would be achieved by adding the clause d’attribution intégrale; and the same issue may arise, in that when one partner has children from a previous relationship, the tontine clause could potentially disinherit these children. In such cases notaires tend to be reluctant to add the tontine clause.

SCI -Société Civile Immobilière
A Société Civile Immobilière, or an SCI, is a property company. There are different types of SCI, and the type that is relevant here is an SCI that is set up, usually by a family, purely for the purpose of owning and managing property. An SCI set up for this purpose is limited in the scope of its activities. It cannot trade, and it cannot get involved in professional property development such as building or buying property speculatively, or renovating and selling on at a profit.

However, it is a business entity, and in legal terms the property bought through an SCI belongs to the company and not the shareholders personally. The shareholders own shares in the company. This is particularly significant for non-residents, because shares in a company are not real estate. Non-residents are only subject to French inheritance laws in respect of immovable assets in France, and shares are not classed as immovable assets. They can therefore be disposed of at will. For residents of France, making a distinction between fixed and movable assets is less significant since their entire estate is subject to French inheritance rules.

There are other potential advantages besides. An SCI can have multiple shareholders; shareholders can join by buying or being gifted shares, or they can sell their shares and leave with minimum disruption, and the property can remain in the ownership of the SCI for generation after generation; also, in the event of one of the shareholders becoming bankrupt, the property owned by a separate business entity of an SCI – unlike a house owned personally – cannot be seized to repay personal debts.

If several couples are planning to buy a property together, it can establish a formal basis for time-share arrangements. Forming an SCI can also provide a solution for couples who are not in a position to enter into an official partnership, either marriage or PACS, and who therefore risk leaving themselves exposed to very high inheritance tax as unrelated beneficiaries.

Using an SCI to buy property in France is losing some of its appeal for those whose primary objective is to protect the interests of the surviving spouse over protected heirs, since in many cases this can now be achieved more simply, as explained above. Inevitably there are costs involved in setting up the company, and it is highly advisable to take expert advice because there is considerable scope, when drafting the articles, to adjust parameters.

One SCI may, for instance, have very different rules governing the sale or transfer of shares from another SCI. It is important to explore the possibilities and future implications, and make careful decisions. It is also essential to understand the shareholders’ legal responsibilities and tax liabilities. However, if the advantages are relevant and of sufficient interest to make the process of establishing, registering and running the business worthwhile, non-residents may find that an SCI provides the most effective way to gain maximum control over what happens to their French property.

Lifetime Gifts and Assurance Vie
It is also worth mentioning briefly here that recent changes to the French rules have to some extent reduced the attraction of the practices of giving ‘lifetime gifts’ and taking out life insurance policies known as assurance vie. These options do, however, still have a place in inheritance planning.

Lifetime Gifts
Formerly of great interest to those who retired to France and became full-time residents, ‘lifetime gifts’, i.e. officially gifting a substantial sum of money, for instance, during your lifetime to a spouse or child, was often a preferred method of minimising inheritance taxes because of the generous tax allowances. However, since inheritance between spouses and PACSed partners is now tax-free, lifetime gifts have lost part of their advantage. They are still worth considering by those intending to retire permanently to France and planning to leave a substantial estate to children, grandchildren or other relatives.