8. Joint Ownership
If you intend to purchase the property on a joint basis then you have the choice of two different joint ownership structures. You can also buy through a property company, which we consider in the next section.
- 8.1 Ownership 'En Indivision'
- 8.2 Ownership 'En Tontine'
8.1 Ownership 'En Indivision'
This is the most common method of joint ownership and in English law is equivalent to a ‘tenancy in common’.
The property is purchased by two or more persons, with each one holding a stake in the property in whatever terms that may be decided between them.
In the case of a couple this would normally be in equal shares but, where there are more than two purchasers, it may be in proportion to the amount each person contributed in financing the purchase e.g. 70% / 20% / 10%.
Top Tip!
Where the property is purchased in unequal shares then it is important that the source of funds from each party is clearly identified to avoid possible later difficulties with the French tax authorities concerning gifts tax.
If you wish to own in equal shares, but with different contributions, then make it clear in the legal documentation that the larger contribution is not a gift, but a loan.
The issue is also important from the perspective of later separation or divorce. Unless, at the time of purchase, the different contributions of each party are reflected in the ownership structure, the property will be owned on an equal basis by all owners and the later sale proceeds of the property will be divided in equal shares between all owners.
One of the key features of indivision is the decision making process that applies. Not surprisingly, all the owners are entitled to participate in decisions concerning the property. This may not ordinarily be an issue between a couple, but could be a problem between several unrelated people, or following an inheritance, when the property may be shared between several inheritors.
Thus, on management matters (lettings, repairs etc) decisions concerning the property require a two-thirds majority, although if emergency action is needed it can be taken by only one of the owners.
Whilst a decision on the sale of the property must be made on a unamimous basis, in exceptional circumstances, one or more of the owners can demand that the property is sold, if they consider that it is in the overwhelming interests of the indivision to do so.
If the others are unwilling to agree, then it would be necessary to apply to the courts, for an order to be obtained, authorising the sale of the property.
However, do not hold your breath the matter could be resolved quickly. Delays in the judicial process mean that it is likely to be up to three years before a hearing could take place, with a right of appeal to either side.
One of the owners can also dispose by way of sale or gift that part of the property they own. In the case of sale of their part of the property, they are obliged to grant a right of pre-emption to existing owners. This rule does not apply where disposal is by way of gift.
The most appropriate way of managing a property held by several different owners, is to draw up a management agreement, called a convention d'indivision, which is considered below.
We can look at the implications of indivision from the point of view of married and unmarried/unrelated owners.
- i. Married Couple
- ii.Unmarried/Unrelated Owners
i. Married Couple
In relation to inheritance rights the effect of indivision has historically been a problem for surviving spouses of a marriage, who risked having to sell the marital home at the bequest of other inheritors entitled to a share of the estate of the deceased!
However, the situation has improved in recent years, to the extent that the surviving spouse is now afforded a large degree of protection.
Although they may not inherit all of the property on death of their spouse (as children are protected heirs), they are entitled to remain in the property for the remainder of their life, provided it is their principal home, whatever the proportion of the property retained by them on inheritance.
If the deceased has children by a previous relationship, then they are entitled to share in the inheritance of the property, in the same manner as children from the present marriage. This can sometimes be a source of conflict between family members, although it does not necessarily weaken the legal position of the surviving spouse.
Whilst there is no inheritance tax liability between man and wife, there is a potential liability on that part of the estate inherited by the children. However, the tax allowances available to children are generous, so this is only going to be a problem for those with substantial wealth.
Top Tip!
Accordingly, purchase en indivision makes sense for most married couples, particularly if accompanied by entering into a French marriage contract, called régime de communauté universelle with the clause d’attribution intégrale. Under the terms of this marriage contract, the whole of the estate of the deceased spouse passes to the surviving spouse.
The problem with this solution if that if you have children by a previous relationship, a French marriage contract has the effect of disinheriting children from outside of the relationship, not blood children of the final deceased.
For this reason most notaires are reluctant to allow a couple with children outside of the relationship to enter into such a contract. Indeed, a notaire is obliged to notify children not of the issue, who then have a right to contest the change of marriage regime.
Accordingly, you may need to adopt a different solution, such as purchase of the property through a French property company. It may also be possible to adopt a marriage contract in tandem with a Family Inheritance Pact (called a pacte successoral), something you can discuss with your notaire.
ii. Unmarried/Unrelated Owners
If the owners are not married, then things are a little different, and often very complicated.
On the death of one of the owners, and where the deceased leaves children, a surviving unmarried partner has limited rights, as the property of the deceased passes to the children of the deceased who share the property indivision. If necessary, they could force the sale of the property, even though the surviving partner may be a joint owner.
There are are a number of possible solutions to this problem, all of which involve a detailed consideration of your circumstances.
In summary, however, the solution turns on granting a 'life interest' in the property to the surviving partner.
This can be done in various ways, either through a will or gift. So, whilst the other inheritors may receive the reversionary freehold interest in the property, the surviving partner at least has the comfort of knowing that they are safe in their home.
Whilst the choice of a life interest does protect the surviving partner, there remains a potential inheritance tax liability on the value of the life interest, charged at the rate of 60%, after a personal allowance of €1500.
Top Tip!
The best way of getting around this problem would be for a resident couple to enter into a French civil partnership, called pacte civil de solidarité (PACS). No inheritance tax is payable between those in a PACS, but a French civil partnership is not available if you are non-resident.
Whichever option you choose, at the time of purchase, it is also desirable to determine how the property is to be managed and, in particular, make some provision in the event of separation, or of the death of one of the owners.
The agreement, called a convention d'indivision, is made in front of the notaire and is normally valid for a period of five years, although it can also be made for an indefinite period.
The agreement cannot override the entrenched inheritance rights of children, or necessarily get around inheritance tax laws, but, within these parameters, it will make explicit what will happen in the event of disagreement or death. It will also set out the day-to-day management arrangements for the property during the lifetime of the owners, including the appointment of one of the owners as the property manager.
In conclusion, whilst indivision does not seem to be too much of a problem for a married couple, if you buy as unmarried partners, or unrelated owners, there are potential difficulties associated with the management of the property and tough inheritance rules on death.
These problems are not insurmountable, but you need to anticipate the potential for disagreement between the owners and, ultimately, your own mortality.
8.2. Ownership 'En Tontine'
A tontine clause is used to avoid the entrenched inheritance rights of children in French law, so that no part of the property passes to them during the lifetime of any of the existing owners.
Under tontine, there is no recogition that each owner has a separate share in the ownership of the property, as is the case with indivision.
Accordingly, where a property is purchased by a couple en tontine then, on the of death of one of the parties, the surviving spouse/partner becomes sole owner, and is retrospectively regarded as having been so since the acquisition of the property.
In effect, there is no transmission of any part of the property from the deceased to the surviving party. Nevertheless, there are transfer fees payable on the transfer of the property into the sole name of the surviving partner.
Historically a tontine clause has been rarely used by the French and is often looked upon with disfavour by notaires because it can have inheritance tax disadvantages, and disinherits children not of the blood line. However, these tax disadvantages are no longer so great for married couples, or those in a French civil partnership.
i. Inhertitance Tax Implications
As between unrelated persons, including those living together in 'free union', there is liability to the tax at the rate of 60% on half the value of the property, with few allowances available. So the use of tontine is not fiscally attractive to those merely living together, albeit that it does give complete security of tenure to the surviving partner.
Such persons may be better advised to use a French property company structure to buy, using a rather complex cross ownership structure called démembrement croisé. We consider this in the next section.
There is no such tax liabilty for married couples, or those in a French civil partnership, so for these couples wanting to protect the interests of the surviving partner, the clause is of greater interest.
The potential tax disadvantage for such couples may arise when ultimately the property is inherited by the children (or other nearest relatives), as the level of inheritance tax payable by them will be higher, because no prior division of the property between inheritors has taken place. For most couples this should not be a major problem as there are attractive tax allowances available to children. You simply need to do the sums.
ii. Inheritance Rights Implications
As far as inheritance rights are concerned, where a couple had children by a previous relationship, then the effect of the tontine clause is to disenfranchise one side of the family, who would have no rights of inheritance (in the same manner as would occur under a French marriage contract).
Thus, on the death of the surviving partner, only the blood children of the deceased would have an automatic right to inheritance.
Example: John has two children by a previous relationship. He and his new partner Anne buy their French home en tontine. They later have a child, Christine. If John dies first, his partner Anne inherits the home in its entirety. When Anne herself dies, the property passes to Christine, as John's children have no blood relation with Anne. Only if Anne died first, and her partner John then inherited the property, would all the children, including Christine, later inherit the property.
So, if you have children by a previous relationship, you may well need to make separate provision through other inheritance planning measures, such as gifts during your lifetime. You can read more about inheritance planning in our Guide to French Inheritance Laws and Taxation.
There are also other practical disadvantages of the clause, one of which is that it cannot be dissolved without the agreement of both parties.
Accordingly, in the event of breakdown of the marriage then, unless the parties can otherwise agree, it is not possible to dispose of the property, which remains in the joint names.
In the absence of mutual agreement, the property remains en tontine until the death of one of the parties, when it transfers to the surviving party.
The use of the clause can also sometimes make it difficult to obtain a loan on a property, although this can be circumvented by the use of separate loans under the name of each of the owners.
Conversely, a tontine clause also has the effect of protecting the property from creditors because, if it is effectively owned by no-one, then creditors have no recourse against the property (other than, of course, a bank holding a mortgage on the property)!
iii. Conclusion
In conclusion, we can summarise purchase en tontine by saying that, as the surviving spouse of a marriage has a strong level of legal protection, a tontine clause is only necessary if you want them to inherit all of the property (although a French marriage contract works just as well, and over all of your estate).
If you are not married then, in order to protect the surviving partner, purchase of your French home en tontine is a useful approach, ideally accompanied by entering into a French civil partnership in order to avoid liability to inheritance tax.
However, in both cases beware of the impact of the tontine clause on children born outside of the relationship, who may have no inheritance rights. For this reason, the notaire may well be unwilling for you to buy in this way.
In addition, a French civil partnership is only available if you are resident in France.
Accordingly, for those not married and non-resident, and/or who have children from a previous relationship, you need also to consider buying through a property company, which we consider in the next section.
Next: Company Ownership
House Buying Process in France