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French Property News, March
2007
When embarking on a journey to French
property ownership, a main consideration should be what happens if
one of the purchasers dies. Many people still neglect this
issue at the time of purchase and later face major challenges in
terms of French taxes or children's statutory rights.
It is advisable to tackle this before making
an investment in order to asses the impact of the French rules and
taxes. Don't lose the inheritance tax battle against the
French Inland Revenue! However, it is not too late to adopt a
scheme which suits your personal circumstances after the
purchase.
The French Inheritance Act 2006 has brought
about some major changes and improvements, in particular in
relation to the drafting of Wills. Where there are children,
the surviving spouse, even as a named beneficiary, will not be in a
position to receive the entire estate. In these circumstances
couples should consider signing a prenuptial or post-nuptial
agreement and entering a community fund or community of property
agreement.
is it really the most popular scheme
for UK buyers in France?
Such agreements (pre-nuptial or post-nuptial)
have been in use in France and other parts of the world for a long
time. They could be aimed at securing a surviving spouse
against the French statutory rules of inheritance. They
enable married couples to express how they wish their assets to be
held during marriage and divided in the event of a death or
divorce.
A community fund called 'communaute
universelle', which can be compared in some ways to a joint
tenancy agreement, is a form of marriage contract under French
law. Under such a contracts spouses can specify that all
property acquired or received by a husband and wife during their
marriage will be deemed to be communal, belonging to a common fund,
'la communaute' administered jointly and with joint powers
over these assets.
who can use it?
Although the UK has not ratified the Hague
Convention of 14 March 1978, it has been in force in France since
1992. Therefore any couples intending to purchase a property,
invest in France or move to France, can sign it. Such an
agreement is available to those who are already married and should
not be compared to a civil partnership agreement.
legal implications
The community fund can specify among other
conditions that upon the death of a spouse, the entire fund (ie
everything the spouses owned jointly) accrues to the
survivor. They could also exclude one particular asset or a
group of assets from the fund, in which case it will fall under
French inheritance rules and tax. In this way, spouses should
overcome the effect of the French inheritance rules on the first
death (ie the compulsory children's inheritance rights).
tax implications
Upon the death of a spouse, the entire common
fund (ie everything the spouses owned jointly accrues to the
survivor (attribution au survivant) without any French
inheritance tax.
The cost, however, is that French inheritance
tax will apply upon the second death on the whole aggregated estate
of the surviving spouse. Therefore, any tax-free threshold
per parent and per child which was available but has not been used
on the first death will only work once on the second death.
This is the price to pay to retain freedom over the family
assets.
full or partial?
In accordance with Article 6 of the Hague
Convention, those who intend to remain non-French domicile (in the
French sense of the word, which means that they won't elect France
as their main home both in terms of facts and intention), the fund
can apply only to the immoveable assets in France (ie the
property). It will not affect any other assets. The
contract is therefore 'partial' as it covers only part of the
assets.
Those who intend to move to France or have
already established their domicile there, can set up a full
community fund for all of their assets. Also, those who
initially decide to enter into a 'partial' community fund, can
later renew the exercise and sign an addendum including their other
assets after they have established a French domicile. Then it
will cover worldwide assets and protect the surviving
spouse.
when does it need to be
signed?
To reduce costs the community fund should be
signed prior to the purchase of a French property (if used as a
second home), or after moving to France (for those who become
French domiciled). This partial fund can be set up at any
time, even after the purchase of the property. This is
helpful to those who were not in a position to sign when they
should have done so or who did not receive legal advice at the time
of their purchase.
children from previous
relationships
As the fund accrues to the survivor no estate
comes into being on the first death. For this reason the
children from a previous relationship are entitled to claim against
the surviving spouse (who will be the sole owner of the fund) for
that which they should otherwise have received under French law on
their parents' death, in other words their French compulsory
rights.
This might be dealt with as part of a global
arrangement in a Will in some other territory, perhaps England is
if some assets remain there.
Also, since 2006 Inheritance Act, the child
can sign a waiver in France indicating that he won't
challenge.
where to sign it
The setting up of the community agreement can
be signed in the UK with a solicitor. For those with existing
properties that need to be transferred into a community fund, it is
important to remember that there are normally stamp duty costs,
which have been temporarily waived by the French Ministry of the
Economy.
We would recommend that for those who wish to
adopt this scheme there is not time to wait! The presidential
election will come up in the spring and depending on who wins, the
French tax environment might change. Note that there should
also be no French court procedure costs.
In summary, no-on can deny that marriage
contracts are helpful wealth management schemes, among others,
bringing advantages that are familiar to those investing in
France. However, long-term wealth management planning should
not be overlook, and in particular the transfer to the next
generation.
For more information, please contact Christophe
Dutertre in Blake Lapthorn's French Private Assets
and Tax team on 023 9253 0379; email christophe.dutertre@bllaw.co.uk.
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