Guide to French Inheritance Laws and Taxes
4. Inheritance Planning in France
Property Ownership Options
- Adopt a French Marriage Contract
- Enter into a French Civil Partnership
- Make a Family Inheritance Pact
- Make a Will
- Create a Trust Structure
- European Succession Law
Financial Planning Options
- Buy or Improve with a Mortgage
- Make a Gift Between Man and Wife
- Make a Gift to Children/Grandchildren
- Make a Gift to Others
- Take out Life Insurance
4.2. Buy using a Property Company - SCI
If neither buying French property en indivision nor en tontine suits your needs, then you may wish to consider establishing a company to buy your French property.
The type of company is called a Société Civile Immobilière (SCI)
An SCI is a rather specialist type of company that is constituted for the ownership and management of property.
Do not consider buying through a UK limited company, or offshore, as these will have taxation implications, and it is simply unnecessary to do so.
We consider the implications on inheritance rights and taxes.
i. SCIs and French Inheritance Rights
SCIs offer certain advantages in relation to French laws on inheritance rights.
If you are non-resident then buying a property through a SCI avoids French laws on inheritance rights, which do not permit complete freedom of action on the disposal of assets on death.
The reason why a SCI structure avoids French inheritance rules is that only fixed assets held by non-residents are captured by the inheritance rules, and as shares in a company are considered as movable objects (meubles) they are exempt from controls on the disposal of fixed assets in France.
Thus, if you are non-resident, the use of an SCI enables you to dispose of the property on your death to whomsoever you wish.
Even if you are resident it is still possible to obtain some relief from the inheritance laws through an SCI. This is achieved through a rather particular division of property rights between the owners.
This division of property rights is called démembrement croisé.
The structure is complex, but briefly, where two people purchase a property, they do so on the basis that neither holds an interest in the freehold of the property. Instead each holds shares that grant them half of the 'life interest' and half of the 'reversionary interest' on an overlapping basis.
On death of one of the owners, the life interest of the deceased is merged with the reversionary interest held by the surviving partner, to grant them freehold ownership of half of the property, whilst they also retain a life interest in the remaining half.
The remaining interest in the property will be the former 'reversionary interest' of the deceased which passes to their inheritors, who will inherit the full freehold of half the property on the death of the remaining owner.
Whilst, therefore, the inheritors of the deceased will become reversionary owners of part of the property (without the right of occupation), the surviving owner retains an interest and the right to remain in exclusive occupation until their death.
If you are an unmarried couple (or you are unrelated owners) buying a property in France, then the SCI is well worth looking at as an ownership vehicle.
A variant on this approach can also be used for the purchase of property with your children, or the transfer of property to them, although for non-residents of certain countries (notably UK and US) there are potential tax implications. You can read more in How to Transfer French Property to Children.
A married couple thinking of setting up a company who merely wish to avoid the restrictions of French inheritance laws, would be far better advised to consider a French marriage contract or adopting European succession laws, although you need to read our guidance on these approaches for a fuller consideration of the isssues.
Even if you are married, if you have children from outside of the relationship, and you are unable to enter into a French marriage contract, then you should consider an SCI.
ii. SCIs and French Inheritance Taxes
One of the most frequent reasons why an SCI is established is to manage the gradual transmission of family wealth to children.
Thus, the shareholding of the SCI could be changed over time so that children of the family can be granted, by way of a tax-free gift, an increasing proportion of the value of the property. By this means the liability to inheritance tax is reduced.
With the abolition of inheritance tax between man and wife, and allowances for children, it may well be that the use of an SCI to reduce liability to inheritance tax is not hugely important for most families.
Neither is an SCI needed to make a tax-free gift to your children or others, although there are reduced formalities of doing so where you are transferring real property.
Nevertheless, particularly if you are not married, or you are married with children from outside of the relationship, the use of an SCI as an ownership structure would help in inheritance planning, so is well worth considering for such couples.
You can read more in our comprehensive Guide to Société Civile Immobilière (SCI).
Next: Adopt a French Marriage Contract
Back: Buy 'En Tontine'
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