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
4.1. Buy 'En Tontine'
4.1.1. What is 'En Tontine'?
In the past, many couples from abroad who purchased a property in France did so using an ownership structure called en tontine.
A property purchased en tontine is a bit of a legal fiction, in that the property is purchased on a joint basis, but in a manner which does not recognise either party in the purchase!
It is only on the death of one of the parties that recognition of the surviving owner takes place, when the law provides that the property is deemed to have been owned by the surviving partner since the initial purchase.
Ordinarily, a tontine clause is only permitted between couples where there does not exist a large age difference between them, failing which the tax authority could judge the clause to be a taxable gift, and other potential inheritors could also make a legal challenge to it.
Moreover, such an ownership structure can only be used at the time of purchase. The ownership structure cannot be later changed to ownership en tontine.
4.1.2. Inheritance Rights Implications
As a tontine clause provides that on first death the property reverts entirely to the surviving partner, so the entrenched rights of children under French inheritance law are avoided - at least temporarily.
Historically, this ownership structure has been used because it has been as the best way of ensuring the surviving spouse or partner could not be removed from the property by other inheritors.
However, changes in the law since 2002 mean that a surviving married spouse is entitled to, at least, life use of the marital home.
Nevertheless, a surviving non-married partner does not have the right of life-long occupation, so it is a good ownership structure for those who buy property in France outside of a married relationship, as it secures the future of the surviving spouse.
The problem with tontine is that, where there are children by a previous relationship, it disenfranchises one side of the family.
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 then inherit the property.
The other difficulty with tontine is that it will only cover assets purchased in this manner. So, if you are resident in France and you hold substantial assets in shares or cash, these will not automatically transfer to your surviving spouse or partner.
You can also adopt European succession law.
You should also consider making gifts or entering into a family inheritance pact
4.1.3. Inheritance Tax Implications
If you are married or in a French civil partnership there is no liability to inheritance tax for the surviving spouse/partner. So the use of a tontine clause between such couples does not pose a tax problem.
However, this tax break does not apply to those who live in 'free union', and the inheritance tax consequences for the surviving partner in such cases are tough.
As between those living in 'free union' inheritance tax is payable at the rate of 60% if it is valued above €76,000, whether or not you use this structure.
Accordingly, if you are living merely living together, whilst you may still wish to by en tontine to avoid the entrenched inheritance rights of children, do not buy on the basis that it gets around inheritance tax. It does not.
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.
The major disadvantage of tontine, even for married couples, is that, on the death of the final surviving parent, your children will be liable to a higher level of inheritance tax than would otherwise be the case.
This is because the taxes are payable on the value of the whole of the property, and with a lower level of allowances to set against the property.
Thus, where the property had been purchased en indivision the children would benefit from the tax allowances available to both parents, whereas only one set of allowances is available on the death of the remaining parent.
Now let us not overstate this point. These allowances are considerable, and the average married couple need no longer be concerned about inheritance taxes, either between themselves, or to their children.
Nevertheless, if you think you may be liable, there are several possible ways of reducing your liability, which are set out elsewhere in this guide, eg gifts.
Even should you not be liable for inheritance tax, you will still be required to pay stamp duty on the transfer of the property to the surviving partner, of around 5% of the value of the property transferred.
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