There are four main ways for individuals to buy a property together, each with different legal and tax implications. The first one is comparable to the English tenancy in common. The next two are comparable to the English joint tenancy. The last one is a company structure.

Purchasing a French property in joint names (en indivision)

The default mode of buying in France is similar to the English tenancy in common and is called Indivision. The share in the property will be governed by the French statutory rules of succession which do not allow a married couple with children to bequeath the whole of their share to each other on the first death. There is a portion reserved to the children.

However on a tax point of view, this structure of ownership would be the most tax efficient if the children are from the couple, as the children would be entitled to their nil rate bands both on the first and second death. Indeed, it is worth noting here that the Revenue does not tax the estate but the beneficiaries. The nil rate band and rates vary depending on the relationship between the beneficiaries and the deceased. Therefore, the more children a deceased leave, the more allowances it will give. Currently, the nil rate band per child is €159,325 in each of their parent's estate.

With this structure of ownership, should the buyers have any disagreement in the future, either of them can force the sale of the property if the other one refuses to buy him/her out. "No joint owner can be forced to remain in indivision”.

If the surviving partner wants to continue controlling the house, a clause under section 1873-13 of the French civil code can be inserted in the deed at the time of purchase in order for the surviving spouse to have a first option to buy out the deceased's beneficiaries (eg. children). However it means that an equivalent in money must be given to them.

If the couple's main wish is to secure future occupation for each other then one of the following 3 options may be sensible to adopt.

Purchasing a property using a survivorship clause (“tontine”)

The buyers have the possibility to ask the French Notaire in charge of the purchase to insert a Tontine clause in the deed. It can never be added after the completion of the purchase.

The effect of the tontine is that the property would pass to the surviving spouse automatically on the first death and the children would not be involved.

Indeed, upon the first death, the survivor will be deemed to have been the legal owner of the whole property back from completion date so that in effect, it never belonged to the deceased for the purpose of the rules of inheritance. This means that the children of the first partner to die will not have any claim (subject to the two tests below being satisfied).

From a tax point of view however, the Revenue considers that half of the property falls within the deceased's estate. If the joint owner is not a spouse, French death duty is likely to be owed.

Death duty will apply upon the death of the surviving spouse on the whole value of the property. This means that, as far as the couple's children are concerned, the tax-free thresholds will be used only once on the second death. This may not be an issue if the value of the property ultimately is below the total of the children's personal nil rate bands added together.

However, for the tontine to be valid, two tests must be satisfied: (1) both buyers need to contribute approximately equally to the purchase price and (2) both tontiniers have similar life expectancies. This means that a tontine between a parent and a child is likely to be challenged by the French Revenue. Also if one partner is much younger than the other one, or is sick when buying, the children of the first partner to die would be entitled to have the tontine treated as a disguised gift. Case law varies but an age difference of more than 10 years is likely to render the tontine invalid.

Another point to note is that a subsequent sale of the property will only be possible with the consent of both “tontiniers”. If one does not want to sell, in contrast to a property owned en indivision, the other cannot force a sale. The only options would therefore be (i) to wait for one to die, or (ii) for both “tontiniers” to renounce the survivorship clause.

Opting for the French matrimonial regime of community of property (‘Communauté Universelle’)

Alternatively, married couples can sign a French marriage contract in order to vary their marital regime and choose a French regime of "community of property with attribution to the survivor" (“La communauté universelle avec attribution au survivant”).

This is a form of postnuptial agreement under French law.

The property will automatically pass to the surviving spouse. However, contrary to a Tontine, children from a previous relationship retain a five-year claim against the surviving spouse to claim their Statutory rights.

People who are not resident in France can choose to have a marriage contract limited to French real property, such as a holiday home. It can also be signed after the property has been bought. Those relocating will have the possibility of including all their assets wherever based. It means all debts will be joint as well.

There are ways to duplicate the English way of leaving assets to the spouse only on the first death but it may not be the most tax efficient way ultimately depending on the value of the property.

Purchasing via a SCI (société civile immobilière)

An SCI is a kind of partnership which has shares, and its articles of association set out the company’s objects, management etc.

From an inheritance point of view, shares are treated as movables and on the death of a shareholder the shares will form part of his estate and therefore might not be subject to the French inheritance rules depending on the law of his domicile. Therefore, people who do not become French resident avoid the French rules of succession.

There are a number of modifications which can be done in the drafting of the articles of association such as qualified majorities for control, restrictions and rights on disposing of shares.

From a tax point of view, an SCI which has the sole object of purchasing and managing a property for the benefit of its members is fiscally transparent and therefore not usually liable to French corporation tax.

This means that the members of the SCI are treated for tax purposes as individual taxpayers owning a share of the property personally. Therefore, when the shareholders of an SCI are individuals, then from a French tax point of view they would be in the same position as if they owned the property in their sole names.

The sale of the property by the SCI or share transfers will attract French Capital Gains Tax; there is stamp duty at 5.10% on the shares’ value disposed of. The dissolution of the SCI followed by the splitting of the funds between the shareholders would attract a 1.1% tax. The CGT rules regarding non-residents would also be applicable when the shareholders are not French residents despite the SCI being a French company (e.g. appointment of a tax representative at the time of selling the property, CGT rate of 19% or 1/3…).

In terms of death duty as well, the shares to be received by the beneficiaries are subject to the same tax-free thresholds and tax rates as if a direct share in the property was being received.

One disadvantage with the SCI is that it cannot let property furnished (eg. holiday lets), as this is seen as a commercial activity which will render the SCI a trading company with a series of tax consequences.

Extreme care must be taken when the clients wish to purchase with a UK Limited company. The tax treatment of such companies by the French Revenue are often underestimated, including the letting of the property, the disposal of shares (even if the transfer takes place in the UK) and the reselling of the property.

To conclude, despite statutory rules of inheritance, individuals buying in France have a few options to consider. I have outlined the position of a married couple with children from the marriage only. Further considerations will need to be taken into account where there are also children from a previous relationship or the partners are not married. Indeed, in both cases, the surviving partner or the stepchildren would see their portion taxed at a rate of 60% after a nil rate band of only €1,594.