Unmarried in France
Friday, 14 May 2021
It could be the name of a television programme about the trials and tribulations of unmarried couples living in or owning assets in another country.
What happens to couples who either decide that marriage is not their 'cup of tea', or who cannot get married for some reason? Should those who don't take the plunge be excluded from buying or living in France?It could be the name of a television programme about the trials and tribulations of unmarried couples living in or owning assets in another country.
What happens to couples who either decide that marriage is not their 'cup of tea', or who cannot get married for some reason? Should those who don't take the plunge be excluded from buying or living in France?
It could be the name of a television programme about the trials and tribulations of unmarried couples living in or owning assets in another country.
What happens to couples who either decide that marriage is not their 'cup of tea', or who cannot get married for some reason? Should those who don't take the plunge be excluded from buying or living in France?
Fortunately not: thanks to PACS (French civil partnership) legislation introduced in France in 1999 and the recent EU regulation 2016/1104 to supporting cooperation in jurisdiction, applicable law and the recognition and enforcement of decisions in matters relating to registered partnerships,
unmarried couples need not worry about investing in French property, whether they intend to move permanently or simply enjoying a holiday home. However, it is key to decide the approach for unmarried couples to buy in France without being hit by potentially dreadful inheritance tax implications.
Estate planning: Keep civil law and tax law separate
The EU regulation on succession law permits a person to choose a different legislation on the settlement of his estate. However, tax law is different, because you cannot choose which country decides how much tax you pay on your estate - your country of residence usually, but not always, has the right to tax your worldwide estate.
Each country has a different system, and in some cases, this can be mitigated by a double tax treaty: France is well known for its tax system, which lead many celebrities and wealthy individuals to leave France to reduce their income or inheritance tax exposure.
For unmarried couples, their partner will be taxed at 60% on any inheritance received from their deceased partner. However, should they opt for any kind of nationality or residence-based registered partnership, they can benefit from a full exemption of inheritance tax, providing they have a will in place: the will is the condition that allows a registered partner to benefit from the same inheritance tax exemption as a spouse in France.
However, some people are reluctant to enter into a registered partnership. In this case, it's wise to explore options for purchasing property while paying the least inheritance tax possible.
Estate planning can be complicated. Every case is different, so the following options may not apply to all unmarried couples However, here's a simple
example to illustrate how inheritance tax can be reduced.
Our couple is in their 50s and in good health, and each has children from previous relationships. They've been together for several years, and while they don't want to marry, they want to buy a property in France together: in the shorter-term, it will be a second residence or holiday home, but potentially they may use it as their main residence in later years.
The property that they found is worth 300,000€ and they will pay in cash. Both have their finances in place to pay their share of the price.
Indivision structure
Whether or not you're married, the structure of ownership is important. It will directly affect the transfer of ownership of your French property after death, if you do not have a 'correct will' in place: that is, one that will fully apply in France and be unrestricted by French inheritance rules: French law operates a strict statutory right for children, so a choice of law in your will is essential to protect your wishes, in the presence of children.
Often, unmarried couple - or even married couples - enter into a 'tenancy in common' (indivision), as they have not considered or actively addressed French inheritance rules when buying property. This structure is the most common vehicle used by the French, so you need to understand its implications.
Most inheritance questions and concerns can (and should) be resolved before the transfer of ownership after a death of one of the partners. When it comes to settling an estate in France, partners are considered to be strangers to each other: unless the deceased has made provisions in their will, their surviving partner may not be eligible to inherit a single 'stone' of the deceased's share in the property. If they are, they may have to pay inheritance tax at a rate of 60%.
However, if you consider civil law, by excluding the tax implications of owning a property in joint names, with a will bequeathing your life interest of your share to your partner, this will be sufficient to allow them to enjoy it during their lifetime. Life interest is a right which should be taxable at a flat rate of 60% between partners, but the figure will be calculated upon the age of the survivor and tax table that you can find in the French tax code.
· For instance, if the survivor is 55 years old, the life interest will represent 50% of the deceased's share of the value.
· In our example, the survivor would be liable for a tax of 150,000€ x 50% (life interest) x 60% (IHT) = 45,000€
· Alternatively, the deceased would have provided full ownership of his share of the property by electing a choice of law. The IHT, in that case, will be 90,000€.
We can already establish that providing a simple life interest, which may be sufficient if the relationship is good with the deceased's children, reduces tax from 90,000€ to 45,000€.
Tontine clause
Another structure that partners have used for a few decades is the Clause Tontine which, also works for married couples under a specific matrimonial
regime (separation of ownership). This concept is simple. After the first death the property is deemed to belong to the surviving spouse retrospectively from completion. The equivalent in the UK is the joint tenancy.
Again, the survivor will be liable for a tax bill at a rate of 60% on the share that is transferred to him. In our case it will be 90,000€.
This structure must be carefully used because it may not often be adequate for unmarried couple, as well as married couple, with children from a previous relationship.
Indeed, the indivision and Tontine vehicles will not trigger any tax if our couple decided to enter into a registered partnership and write a simple basic will.
Life insurance policies
Life insurance - known as Assurance vie in France - is often used for estate planning purposes, because it's a secured investment that provides capital and interest upon the death of the policyholder(s). A major advantage is that it will be excluded from your estate and exempt from French inheritance tax, as long as it was taken out before your 70th birthday. Any sum paid into the life insurance policy after 70 will be included in your estate (article 757 B of the tax code).
Life insurance payments are subject to a 'suis generis' tax, pursuant article 990 I of the Tax code: the rate is 20% from 152,500€ up to 700,000€ and 31.25% above this threshold. The beneficiaries of a policy also benefit from a general threshold of 152,500€ before applying any tax.
In our example from earlier, we established that the survivor could be subject to an inheritance bill of either 45,000€ or 90,000€. However, if this couple invest some savings (if they are able to), they could transfer a tax-free sum via a life insurance policy to their beneficiary to enable them to pay the inheritance tax.
Keep in mind that your savings and any bank accounts are also subject to French inheritance tax if the deceased is a French tax resident at the time of death, so rather than leaving a sum of - let's say 120,000€ - in a basic savings account, our couple could have transferred it into a life insurance policy, so upon their death the sum would be paid tax-free to the survivor, named as the beneficiary of the policy (152,5000€ tax threshold - 120,000€ policy = 0€ IHT to pay). Hopefully this shows the importance of considering in estate planning.
Adventures in French law
If you want to be more creative, there are other vehicles available to purchase properties in France. A dismemberment of ownership is another solution. The property of a real property can be “dismembered” between the life interest on one hand and the bare ownership on the other hand.
Both purchasers acquire a different legal right, life interest (usufruit) on one side and the bare ownership (nue-propriete) on the other side. Only the bare owner will eventually become the full owner of the property, inheritance tax free, when the life interest extinguishes. However, for this acquisition the main question is who buys what?
Finally, the company structure can be an alternative. It is a structure that will require particular advice but can be the solution to avoid the payment of 60% between partners. If correctly drafted, the transfer of shares can be subject to a stamp duty of 5% only. In our scenario, our unmarried couple couldtransfer the full ownership to the remaining shareholder with a cost of only 7,485€ rather than 45,000€ or 90,000€.
As you have seen, French law is complicated - but its complexity offers multiple options to adapt to each situation. This means that unmarried couples can follow their dream of owning a property in France and potentially even move to France without fear of the French tax regime. In theory, there will be 60% of inheritance tax to pay; however, with some guidance, this can be reduced or even avoided.
It could be the name of a television programme about the trials and tribulations of unmarried couples living in or owning assets in another country.
What happens to couples who either decide that marriage is not their 'cup of tea', or who cannot get married for some reason? Should those who don't take the plunge be excluded from buying or living in France?It could be the name of a television programme about the trials and tribulations of unmarried couples living in or owning assets in another country.
What happens to couples who either decide that marriage is not their 'cup of tea', or who cannot get married for some reason? Should those who don't take the plunge be excluded from buying or living in France?
It could be the name of a television programme about the trials and tribulations of unmarried couples living in or owning assets in another country.
What happens to couples who either decide that marriage is not their 'cup of tea', or who cannot get married for some reason? Should those who don't take the plunge be excluded from buying or living in France?
Fortunately not: thanks to PACS (French civil partnership) legislation introduced in France in 1999 and the recent EU regulation 2016/1104 to supporting cooperation in jurisdiction, applicable law and the recognition and enforcement of decisions in matters relating to registered partnerships,
unmarried couples need not worry about investing in French property, whether they intend to move permanently or simply enjoying a holiday home. However, it is key to decide the approach for unmarried couples to buy in France without being hit by potentially dreadful inheritance tax implications.
Estate planning: Keep civil law and tax law separate
The EU regulation on succession law permits a person to choose a different legislation on the settlement of his estate. However, tax law is different, because you cannot choose which country decides how much tax you pay on your estate - your country of residence usually, but not always, has the right to tax your worldwide estate.
Each country has a different system, and in some cases, this can be mitigated by a double tax treaty: France is well known for its tax system, which lead many celebrities and wealthy individuals to leave France to reduce their income or inheritance tax exposure.
For unmarried couples, their partner will be taxed at 60% on any inheritance received from their deceased partner. However, should they opt for any kind of nationality or residence-based registered partnership, they can benefit from a full exemption of inheritance tax, providing they have a will in place: the will is the condition that allows a registered partner to benefit from the same inheritance tax exemption as a spouse in France.
However, some people are reluctant to enter into a registered partnership. In this case, it's wise to explore options for purchasing property while paying the least inheritance tax possible.
Estate planning can be complicated. Every case is different, so the following options may not apply to all unmarried couples However, here's a simple
example to illustrate how inheritance tax can be reduced.
Our couple is in their 50s and in good health, and each has children from previous relationships. They've been together for several years, and while they don't want to marry, they want to buy a property in France together: in the shorter-term, it will be a second residence or holiday home, but potentially they may use it as their main residence in later years.
The property that they found is worth 300,000€ and they will pay in cash. Both have their finances in place to pay their share of the price.
Indivision structure
Whether or not you're married, the structure of ownership is important. It will directly affect the transfer of ownership of your French property after death, if you do not have a 'correct will' in place: that is, one that will fully apply in France and be unrestricted by French inheritance rules: French law operates a strict statutory right for children, so a choice of law in your will is essential to protect your wishes, in the presence of children.
Often, unmarried couple - or even married couples - enter into a 'tenancy in common' (indivision), as they have not considered or actively addressed French inheritance rules when buying property. This structure is the most common vehicle used by the French, so you need to understand its implications.
Most inheritance questions and concerns can (and should) be resolved before the transfer of ownership after a death of one of the partners. When it comes to settling an estate in France, partners are considered to be strangers to each other: unless the deceased has made provisions in their will, their surviving partner may not be eligible to inherit a single 'stone' of the deceased's share in the property. If they are, they may have to pay inheritance tax at a rate of 60%.
However, if you consider civil law, by excluding the tax implications of owning a property in joint names, with a will bequeathing your life interest of your share to your partner, this will be sufficient to allow them to enjoy it during their lifetime. Life interest is a right which should be taxable at a flat rate of 60% between partners, but the figure will be calculated upon the age of the survivor and tax table that you can find in the French tax code.
· For instance, if the survivor is 55 years old, the life interest will represent 50% of the deceased's share of the value.
· In our example, the survivor would be liable for a tax of 150,000€ x 50% (life interest) x 60% (IHT) = 45,000€
· Alternatively, the deceased would have provided full ownership of his share of the property by electing a choice of law. The IHT, in that case, will be 90,000€.
We can already establish that providing a simple life interest, which may be sufficient if the relationship is good with the deceased's children, reduces tax from 90,000€ to 45,000€.
Tontine clause
Another structure that partners have used for a few decades is the Clause Tontine which, also works for married couples under a specific matrimonial
regime (separation of ownership). This concept is simple. After the first death the property is deemed to belong to the surviving spouse retrospectively from completion. The equivalent in the UK is the joint tenancy.
Again, the survivor will be liable for a tax bill at a rate of 60% on the share that is transferred to him. In our case it will be 90,000€.
This structure must be carefully used because it may not often be adequate for unmarried couple, as well as married couple, with children from a previous relationship.
Indeed, the indivision and Tontine vehicles will not trigger any tax if our couple decided to enter into a registered partnership and write a simple basic will.
Life insurance policies
Life insurance - known as Assurance vie in France - is often used for estate planning purposes, because it's a secured investment that provides capital and interest upon the death of the policyholder(s). A major advantage is that it will be excluded from your estate and exempt from French inheritance tax, as long as it was taken out before your 70th birthday. Any sum paid into the life insurance policy after 70 will be included in your estate (article 757 B of the tax code).
Life insurance payments are subject to a 'suis generis' tax, pursuant article 990 I of the Tax code: the rate is 20% from 152,500€ up to 700,000€ and 31.25% above this threshold. The beneficiaries of a policy also benefit from a general threshold of 152,500€ before applying any tax.
In our example from earlier, we established that the survivor could be subject to an inheritance bill of either 45,000€ or 90,000€. However, if this couple invest some savings (if they are able to), they could transfer a tax-free sum via a life insurance policy to their beneficiary to enable them to pay the inheritance tax.
Keep in mind that your savings and any bank accounts are also subject to French inheritance tax if the deceased is a French tax resident at the time of death, so rather than leaving a sum of - let's say 120,000€ - in a basic savings account, our couple could have transferred it into a life insurance policy, so upon their death the sum would be paid tax-free to the survivor, named as the beneficiary of the policy (152,5000€ tax threshold - 120,000€ policy = 0€ IHT to pay). Hopefully this shows the importance of considering in estate planning.
Adventures in French law
If you want to be more creative, there are other vehicles available to purchase properties in France. A dismemberment of ownership is another solution. The property of a real property can be “dismembered” between the life interest on one hand and the bare ownership on the other hand.
Both purchasers acquire a different legal right, life interest (usufruit) on one side and the bare ownership (nue-propriete) on the other side. Only the bare owner will eventually become the full owner of the property, inheritance tax free, when the life interest extinguishes. However, for this acquisition the main question is who buys what?
Finally, the company structure can be an alternative. It is a structure that will require particular advice but can be the solution to avoid the payment of 60% between partners. If correctly drafted, the transfer of shares can be subject to a stamp duty of 5% only. In our scenario, our unmarried couple couldtransfer the full ownership to the remaining shareholder with a cost of only 7,485€ rather than 45,000€ or 90,000€.
As you have seen, French law is complicated - but its complexity offers multiple options to adapt to each situation. This means that unmarried couples can follow their dream of owning a property in France and potentially even move to France without fear of the French tax regime. In theory, there will be 60% of inheritance tax to pay; however, with some guidance, this can be reduced or even avoided.