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31st July 2010
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 Unmarried and buying in France? An SCI could be the answer….
There is no longer any inheritance tax between spouses in France. However, a live-in partner is effectively treated as a stranger and only has an allowance of only 1520 €. Anything she or he inherits after that will then be taxed at a rate of 60% - ouch! Such a tax bill may well mean having to sell the property to clear the debt! Some partners could of course get married and solve most of their French tax problems, but some people would prefer not to make a decision to get married based purely on tax reasons and this option is not available to same-sex partners. What else can be done to mitigate heavy taxes? Civile partnership agreements Since 15th November 1999, heterosexual or same-sex couples who want to live together and share their lives may make a pacte civil de solidarité (PACS) which has legal recognition in France. This is in fact a contract by which the couple declare that they are sharing their lives and that they wish to register the fact and have their relationship made subject to the 1999 law. For gift and inheritance tax purposes, the partners are then exonerated from inheritance tax in the same way as married couples. However, this option is only available to those who are either French or resident in France. Although the English civil partnership agreement is now recognised in France, this method is not available to heterosexual couples. SCI tontiniere – a French property-owning company with a twist Another rather neat solution, available to residents and non-residents, heterosexual and same-sex partners alike, is to set up a particular type of company known as a Société Civil Immobilière (SCI) Tontinière. An SCI is a French property-owning company suitable for small numbers of people or family groups, set up to manage and/or let property. It is possible to have a special form of this company whereby the shares are held en tontine. Shares held in this way cannot be said to belong to either of the owners. It is as if both partners are holding the property on trust until the other dies. At this point the survivor is said to own all of the shares retrospectively (from the date of purchase) and the deceased is considered never to have had any rights as far as ownership of the shares is concerned. The real advantage of this is that because the transfer of shares to the survivor is not considered an inheritance but instead is treated in the same way as a sale of shares, then the rate of tax paid is only 5%, as with any transfer of shares. For an unmarried partner, this represents an enormous saving on the usual rate of inheritance tax for ‘strangers’ of 60%. Furthermore, the rights of the deceased’s reserved heirs, such as children, are effectively eliminated with regard to the assets of the SCI. Previously, there were disadvantages to this structure in the UK. This is because the Inland Revenue would treat the shareholders as if they were directors receiving benefits in kind from the company. Thus the shareholders would be charged income tax on the deemed rental value of the property for all the time it was available to them. This measure was abolished from 2008 and applies retrospectively. Therefore anyone setting up an SCI now is unlikely to have any tax problems at home. Are you eligible to use a tontine clause? There are some provisos to the use of a tontine clause whether in a purchase contract or the status (articles of association) of an SCI. These are that the couple must contribute equally in financial terms to the purchase and that they must be of similar age. The reason for this latter proviso is that the people concerned must have the same life expectancy to have an equal chance of benefiting from the tontine clause eventually. The reason for the former is that if the contributions were not equal, there would be a disguised gift and hence an avoidance of tax. It might also be seen as a deliberate attempt to benefit the partner to the disadvantage of any reserved heirs, which may be considered an abuse of law in France, leading to the arrangement being treated as void. Take care The SCI tontinière solution is little used in France and therefore you should make sure you are dealing with a notaire and/or an English lawyer who is familiar with the structure. Always seek legal advice on your own circumstances before making any decisions on ownership structure. Susan Busby MA France Legal 01449 736644 ssb@francelegal.co.uk  Trying to get on the housing ladder in France? Beware of French succession law French Property Ownership Solutions French Law Zone Home Page Looking for a property in France? Use FrenchEntrée's Property Finders to help you find your property and to help you through the buying process 
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