8. Joint Ownership of French Property
- 8.1. Joint Ownership 'En Indivision'
8.2. Joint Ownership 'En Tontine'
8.2. Ownership of French Property '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 recognition 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.
8.2.1. French 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.
8.2.2. French 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)!
8.2.3. 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
Back: Ownership 'En Indivision'
House Buying Process in France