tax and case law update affecting couples and companies
Three interesting news caught my attention at the turn of the
year. Firstly, the tax position of foreign civil partners is now
clarified and aligned to that of married couples. Secondly, the
Supreme Court had a rare opportunity to rule on the application of
Hague Convention in relation to ownership of property under a
marital regime. Thirdly, and sadly for shareholders, a loophole has
been closed, meaning that the transfer of shares based in a company
outside France will now be subject to taxation if the company's
assets consist of French property.
full exemption from inheritance tax for couples under a UK
civil partnership
UK Civil Partnerships will now take effect in France thanks to a
law dated 12 May 2009, which introduced a new section into the
French Civil Code alongside the rules applicable to the French PACS
(pacte civil de solidarité).
The effects of a partnership agreement forged outside France
will be recognised in France provided they do not contravene French
public order or French law. For instance certain countries allow
siblings to sign a "cohabitation contract". This would not be
recognised in France as only partnership between couples (non
relatives) are legally recognised.
From a tax point of view, the ministry of Economy confirmed on 1
December 2009 that the tax provisions applicable to partners under
a French PACS are now available to civil partners. Just as for
married couples, the tax benefits include (1) a full exemption from
inheritance tax on death, and (2) an allowance of €79,533 on
gifts.
However, unlike married couple, the partners are not
automatically entitled to a share in each other's estate. They
should remember to check the succession laws applicable to them
before drafting any Wills, ideally before relocating or buying any
property in France (afterwards, it is not possible for instance to
buy a house with a joint tenancy known as Tontine).
Partners will also be subject to a joint income tax form to
declare their French letting income for instance, or their wealth
tax (if value of assets above €790,000).
Partners who are resident in France can sign a French PACS. It
is worth noting that the PACS applies to all couples, not only
same-sex couples. This can be a more flexible option for partners
who were married before and do not wish to re-marry. Without a
PACS, non married partners would be subject to inheritance tax at
60% after an allowance of €1,570.
marital regime applicable to couples married after 1992
On November 2009, the French Supreme Court (Cour de Cassation)
ruled on the Hague Convention applicable to matrimonial property
regimes. The convention applies to all marriages celebrated after
01 September 1992, even if the nationality or the habitual
residence or the law to be applied by virtue of the convention is
not that of a contracting state.
Therefore, although the UK has not ratified the Convention
(only three countries have: France, Luxembourg and the
Netherlands), a British couple who live or own a second home in
France will be subject to the above convention because it is part
of the French law. The default rule is that their property regime
is subject to the law of the State where they established their
first habitual residence after marriage.
If a couple established their first residence in England after
the marriage, and regardless of where the marriage took place,
France will conclude that the couple is married under English law,
even if the UK has not signed the convention. Similarly, a couple
who married in the UK but who lived in France immediately after the
marriage will see French law applied to their assets.
In the Supreme Court case, the Court of Appeal's decision was
overruled as it had not apply the convention on the ground that
Syria, the country in question, had not ratified it.
Furthermore, couples should not forget that under this
convention, if they relocate in another country, the property
regime of that host country will automatically become applicable to
their assets after 10 years in lieu of their initial property
regime unless they sign a declaration to prevent this.
transfer of shares of a UK company holding French real
estate
On 30 December 2009, a loophole was closed. The latest budget
expressly refers to the transfer of shares held in foreign
companies which assets are mainly French immoveables (real estate).
Such transfers, even if made abroad, would be taxable in France at
5% (same rate as the sale of the immoveable property itself).
Therefore a UK Limited company which holds at least 50% of his
assets in French real estate will have to register the transfer of
shares at the French Revenue within one month and discharge the tax
liability.
The new regime also applies to indirect ownership of French real
estate, for example a UK limited company having shares in
a company which mainly hold French properties. However, the new
regime does not apply to companies with public shares.
This closes the loophole confirmed by the court of Appeal of
Aix-en-Provence on November 2009 under the previous tax legislation
applicable. In the case, shares in a UK Ltd company which held a
building in France via a subsidiary were transferred outside
France. Because a provision at the time indicated that only a
transfer of foreign shares made in France would incur taxation, the
Court concluded that no registration duties were owed on the
foreign transfer.
Holding a property in France by foreign companies can have other
tax disadvantages not to overlook before buying.
This article has been published in French Property News,
the most comprehensive guide UK guide to buying property in
France.
