8. Joint Ownership of French Property
- Joint Ownership 'En Indivision'
- 'En Indivision' for Married Couples
- 'En Indivision' for Unmarried Couples/Groups
- Joint Ownership 'En Tontine'
8.4. Ownership of French Property 'En Tontine'
A tontine clause (or clause d'accroissement as it is also called) 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. It creates what is effectively a legal fiction.
Accordingly, where a property is purchased by a couple en tontine then, on the 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, the purchase of the property is made to the benefit of the last survivor.
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.
For unrelated couples there are various permutations of the tontine clause that can be used, and it would be best to discuss these with a good notaire.
8.4.1. French Inhertitance Tax Implications
As between unrelated persons, including those living together in 'free union', there is liability to inheritance tax at the rate of 60% on half the value of the main residence, provided the property is valued at over €76,000.
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 (SCI) to buy, using a rather complex crossed ownership structure called démembrement croisé. We consider this in the next section.
Alternatively, purchase through an SCI that contains a tontine clause within it. You would still pay stamp duty on transfer of the shares, but no inheritance taxes.
You need to take good advice on these structures in order to avoid the risk of being charged with tax evasion by the authorities.
There is no such tax liability 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.
If you are already in a civil partnership from your country of origin then you will normally be exempt from the payment of French inheritance taxes, provided this rule applies in the country of jurisdiction of your civil partnership.
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.
8.4.2. 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.
8.4.3. Other Implications
There are also other practical disadvantages of the clause.
One such issue 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. If you agree, then a tontine can be annuled and you can default to the standard 'indivision' form of ownership.
The use of the clause can also sometimes make it difficult to obtain a mortgage or loan on a property, as the final owner cannot be known when the loan is taken out. This can be circumvented by the use of separate loans under the name of each of the owners, subject to agreement of the bank.
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)!
There is also the risk of the clause being declared invalid if there is a substantial age difference between the parties or there is not an reasonably equal contribution made by each party to fund the purchase. Thus, on the death of one of the parties the tax authority could re-qualify the clause as a gift, on which taxes would be payable. Disinherited family members could also possibly challenge the clause.
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.
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 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.
Finally, since August 2015, a European law has made it possible to avoid the entrenched inheritance rights of France altogether and, through a Will, adopt the inheritance laws (but not taxes) of your home country, although since 2021 there is a legal dispute about this right due to a change in French laws.
For those not married and/or who have children from a previous relationship, you need also to consider buying through a property company (SCI), which we consider in the next section.
Next: Company Ownership
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