common structures for buying french property

1. En Indivision :

The default purchase structure at French law as regards non-resident purchasers of French property, including those married in England without any particular marriage contract, is the relationship known as "indivision". The relationship between purchasers in indivision are governed under the French Civil Code but the co-purchasers are free to vary these default provisions by entering into their own agreement between co-purchasers. This should ideally be done prior to purchasing the property and the agreement must be in French and formally entered into.

2. Communauté universelle :

Spouses may, at the time of buying their French residential property, enter into a "communauté universelle" matrimonial regime with an "attribution intégrale" provision. This is made possible by the Hague Convention of 1978 on "The Law applicable to matrimonial property regimes". The adoption of this regime need not affect all the assets of the couple in France, but can be specifically restricted to their residential property. As a result of entering into such a regime the spouses hold a joint tenancy over the property and on the death of one of them  the property vests automatically into the survivor, under the operation of the matrimonial regime. This vesting works outside the rules of the law of succession and consequently the right of children to a statutory "reserved share" does not come into play. There is however a qualification which has become increasingly important with the growth of "folded families".If one of the spouse has a child from a previous marriage or relationship, this child cannot be kept out of his statutory reserved share by the device of his parent entering with the non-parent into "communauté universelle" matrimonial regime with an "attribution intégrale" provision. This is meant to protect the child's position in the event of the survivor being the non-parent, as in such a case, the non-parent will become the sole owner of the property and given the absence of blood ties between the child and the non-parent, the child will have no legal right to a statutory reserved share in the estate of the non-parent at death.

3. "En Tontine" :

Purchasing the property under a "pacte tontinier", that is to say in "joint ownership".It must be borne in mind that in France property bought in common by spouses (or non-spouses for that matter) is deemed to be bought under a "tenancy in common" and not a "joint tenancy". The upshot is that at death, the share of of the deceased tenant in common will not vest automatically in the survivor (joint tenancy) but will form part of his estate and devolve according to the rules of French law of succession. In order to bring about "joint ownership" of the land the spouses, or partners, buying directly, have the choice of adopting the French matrimonial regime of "communauté universelle" with an "attribution intégrale" clause or opt for a "pacte tontinier". This "pacte" has the effect of making the "joint owners" of the property with the whole of the property vesting in the survivor at death, the whole operation taking place quite outside the rules of French law of succession and therefore being unaffected by them. Until recently this method of purchasing was often shunned at its lacked inheritance tax efficiency, but this should now change, as since September 2007 as a result of the amendments introduced to French inheritance tax by the conservative government of President Nicholas Sarkosy, inheritance tax on death has been abolished as between spouses.

4. Using a French "SCI" :

It is possible to purchase the property through the medium of a French incorporated "civil" company known as a "société civile immobiliere". The advantage of using such a vehicle is that the shares therein have the status in law of being movable property and as such on the death of the holder will pass according to the law of succession of his domicile and not according to the law of succession of the country where the property is situated, that is to say France. Hence, insofar as the British shareholders of such company do not take up a French domicile, their shares, at their death will pass according to the law of succession of their British domicile, which does know of any statutory "reserved rights". It must be pointed out in passing that this arrangement is tax neutral in France and from 2008 will not risk attracting tax in the UK provided certain criteria are met.

This method of purchasing can be used as between unmarried partners provided that there is no more than 10 years difference in age between the partners and they are as between partners  It is important at this point to examine the incidence of French law of succession upon residential property held by unmarried couples.

5. Using a company incorporated in the UK :

As can be gathered from the foregoing paragraph, the tax treatment of capital gain on the sale of a French residential property held by a UK incorporated company subject to UK corporation tax, is not a favourable one. This is so, even though the members of that company are physical persons resident in the UK , who, had they bought the residential property in their own name (or by way of a French "land" company) rather than through a UK corporate vehicle, would have enjoyed taper relief with exoneration from capital gain tax after 15 years of ownership.

It must be emphasized that this unfavourable treatment does not stop at capital gain but extends to other aspects of French Revenue law. Thus, A French residential property held by a UK corporate vehicle subject to UK corporation tax, is expected by the French Inland Revenue to be managed  in a business like manner, and as such not to be occupied for free by the shareholders. Such free occupation may lead in due course to a tax demand made againt the company, that will be based on the value of the notional rent which should have been collected by it from the shareholders for such occupation.

Furthermore, the residential property held by such company is liable to a annual levy equal to 3% of the market value of the property. A UK company may escape this levy by virtue of the Double Taxation Relief Treaty between France and the United Kingdom 1968, but only inasmuch as within 2 month of the purchase of such property the UK company enters into an undertaking with the French Inland Revenue to disclose on demand a list of all its property assets, and the residence for tax purpose of its shareholders. Otherwise in order to claim the exemption the company will need tosubmits annually a form claiming this exemption failing which it will have to be paid.

6. PACS (Pacte Civil de Solidarite):

This is an agreement between two unrelated people living together. This is a helpful arrangement and couples can decide how they share their assets in the event of separation and death but a Pacs does not eliminate the need to make arrangements (a will) for inheritance purposes. It can only be entered into by French residents and must be registered at the local Tribunal