Buying property in France is simple and straightforward, but there are important differences in the laws of France and of other countries which you may not be familiar with.

These notes are taken from the official website of the Notaires of France. Every property sale must be dealt with by a Notaire who is responsible for ensuring the correct taxes and fees are paid. The Notaire is not acting for either the buyer or seller and it is often advisable to get independent advice.

When the English buy in France

Published by Notaires Of France

Property purchases by the British have certain peculiarities.

To understand the law applicable to the purchase of a property located in France by an English person, we need to refer to the Rome Convention of 19th June 1980 on contractual obligations. Where the subject of the contract is a real property right, we presume that it presents "the closest links" with the country in which the property is located. Thus, the sale of a property is France is subject to French law. But the Rome Convention does not govern all matters relating to the contract. The legal capacity of the parties, minors or incompetent persons, would have to be examined by reference to their personal law.

In the case of a husband and wife, the law of the matrimonial system will determine their powers of administration and disposal. If the purchasers do not travel to France to conclude the transaction, there will be a problem of representation and power of attorney.

On the purchase, one must also consider how this asset will be bequeathed, together with its tax implications.

The advantage of purchasing within a company

The acquisition of a property in France can be carried out either in the form of a property or in the form of shares in a property company, which under French Law are similar to movable property. The nature of the acquired property movable or immovable plays a determining role vis-a-vis the future estate of the purchaser.

French and English inheritance law

French private international law contains a double rule in terms of inheritance : the law of the deceased’s domicile in respect of movable assets and the law of the location of the property in respect of immovable assets. The same rule of conflicting laws is admitted in England.

The purchase of a property located in France will entail the application of French law to the conveyance of that property and, in some cases, can break the unity of the estate. The purchase of a movable asset will keep this new asset within the whole of the inheritance governed by the law of the deceased’s domicile. The purchaser must be informed of the fate of that property in his future estate in the deed of purchase.

Special inheritance rights

An English person will be surprised to learn that special inheritance rights (unknown in English law) limit his ability to dispose of a property purchased in France.

In the case of shares in a property company, their devolution will follow the English law of the deceased’s domicile. To prevent breaking the unity of the estate, one could suggest to an English person domiciled in England, where all his assets are located, that he should set up a French or foreign property company to which the property located in France will be contributed. On his death, the shares in the company will be distributed as movable assets in accordance with English law.

Validity of the company

Forming a property company can allow the purchaser to avoid the damaging effects of parceling the inheritance. In itself, the contribution or sale of a property located in France to a property company or a foreign company cannot be presumed to be fraudulent if the parties and their heirs are seeking to settle certain economic, family or tax problems equitably.

Tax aspects

In this area, the proposed solution is of less interest. In fact, the transfer of a property or shares in a property company will be subject to French tax law in both cases. In application of the agreement of 21st June 1963 between France and the United Kingdom designed to prevent double taxation on inheritances, properties are taxable where they are located. Shares in a "partnership" (this term includes a French "société en nom collectif, société en commandite simple and société civile) are deemed to be located in the place where the business is primarily operated. As far as property companies are concerned, that is the location of the properties operated in accordance with the corporate object. These shares will be taxable in France even if the deceased is domiciled in England.

Trusts are not recognised in France

Remember that in France the purchase of a property in the name of a trust must be completely ruled out. As a trust has no moral personality, the property may not be registered in France in the name of the trustee, while the Hague Convention of 1st July 1985 relating to trusts is not ratified by France.

Tontine

In order to avoid or delay payment of an inheritance, the property investment can be in the form of a tontine. The tontine agreement is a type of contract of sale which can be adopted if the contract of sale comes under French law, regardless of the nationality of the purchasers and, in the case of a husband and wife, provided they have a separate estates marital agreement. Furthermore, under English law, a joint tenancy is a form of joint ownership where the survivor becomes the sole owner of the jointly held property. This generally occurs between husband and wife or partners and relates to the joint home. Its effects are similar to a French tontine. This explains the benefits of purchasing under a tontine for the British.

Special inheritance rights again

This type of acquisition offers special advantages for the English purchasing a property in France, particularly a married couple. The conveyance of the property is governed by French law. Now, natives of countries whose domestic legislation does not have special inheritance rights, such as Great Britain, might want to make use of this mechanism, since it will enable the survivor of the jointly purchasing spouses to become the sole owner of the property without having to share it with common children or children born of a previous marriage. The benefits are even greater in the case of an unmarried couple.

The tax restrictions of a tontine

From the civil point of view, the insertion of a tontine agreement in the deed of purchase can be satisfying. From the tax point of view it can be quite the opposite : the transaction is only beneficial if on death the property is their joint main home and is worth less than 76,000 euro. If these conditions are not fulfilled, the surviving spouse will receive the pre-deceased spouse’s share at the transfer duty rate applicable to inheritance.

Effect of the marital scheme

Where the purchase is made by a married couple, their marital scheme needs to be ascertained. In most cases, where the couple establish their joint residence in England after the marriage, they will be covered by the English legal scheme of separate estates. The property will be jointly or individually owned by the couple depending on whether the acquisition was made in the name of one or both of them. The property may be disposed of by one of them if it is solely owned or both if it is jointly owned.

Protection of the principal home

If the couple subsequently establish the family domicile in that property in France, the agreement of both of them will be required when it is sold even if it is an individually owned property ; Article 215 of the Civil Code has by primary statute the nature of police regulations applicable in France to all married couples regardless of their nationality or marital scheme.

To change the marital scheme

If the couple are in a separate estates marital scheme and if the inheritance law is French law, the surviving spouse will be disadvantaged in relation to English inheritance law. One could suggest to a couple married under English law and the separate estates marital scheme that they might change their marital scheme. In accordance with English law, this change could be effected in England or France by simple notarised deed, without Court approval, with a change in applicable law stemming from Article 6 of the Hague Convention (see Memo, International Marriages and Marital Schemes).

Procedure for changing

The couple will partially change their marital scheme while remaining under the English separate estates scheme. In accordance with French law, they will add a clause whereby the property they own and will own in France will e held jointly, with a clause awarding that joint ownership to the survivor. In fact, if the couple are both English and domiciled in England, they can opt for French law only in respect of immovable property in France and not for movable property and that clause could not relate to shares in a civil company. On the other hand, if one of the couple is French or has a customary residence in France, the choice of French law and the French general communal estate scheme, with a clause awarding communal ownership to the survivor, is possible.

Tax savings

On death, this change in marital scheme (partial or total) will offer the tax benefit of a marriage agreement which on death does not entail free transfer duty between husband and wife.

Recourse of children

It should be pointed out that if the husband or wife had non common children, children from a previous marriage or illegitimate children, and use this clause benefiting the surviving spouse, the latter could be faced with action for retrenchment. This action enables injured children to apply for a reduction of the benefit, as if it were a donation. It is in the nature of an inheritance and applies to immovable property located in France handed down in accordance with French law or a movable asset handed down in accordance with French law under the law of the deceased’s domicile.

A difficult choice

Thus, the acquisition of a property is a delicate transaction where the purchaser is English. The reason relates to the difference inthe respective laws.

published by Notaires Of France