Charlotte Macdonald, an associate solicitor in Stone King’s international and cross border team, sets out a number of scenarios that a British owner of French property may encounter.
Over a 12-part series of articles Charlotte will cover topics such as how to buy your property as a couple (jointly or not), the different legal implications for a married couple and a civil partnership, and what happens to the property on your death, including who it will pass to and what succession tax consequences there might be.
Scenario Nine – Buying property in France as a couple
Ian and Isabelle are English. They live in London and are buying a holiday home near Bordeaux valued at €400,000.
They have been married for five years and have been considering this purchase for some time. Isabelle will be providing the majority of the funds and the couple are wondering whether it would be better to buy the property in joint names, or whether it would be better for Isabelle to buy the home in her sole name.
Gift Tax consequences
In the UK spouses are able to give gifts to one another without having to pay inheritance tax or a gift tax.
This means that if a property was bought in Isabelle’s sole name and later transferred into Ian and Isabelle’s joint names there will be no inheritance tax or gift tax to pay in the UK.
In France the position is different. If you own a property located in France, it will be subject to French taxes. If you give a percentage of your French property to your spouse and the percentage that you give away is valued at over €80,724, the gift will be liable to French gift tax. This means that it is very important to consider carefully in whose name the property is bought, and if together in what percentage shares.
As mentioned above the French property that Isabelle and Ian are looking at buying is worth €400,000. If Isabelle bought the property in her sole name and then later decided it should be owned equally by her and Ian jointly, Ian would need to pay French gift tax, as his share would be worth over €80,724.
An alternative way of buying the property would be ‘en indivision’ with Isabelle having a greater share of the property, say 80% and Ian owning the remaining 20%. They would still own the property together and would need to make decisions about it together, but if and when the property is sold, Isabelle would receive 80% of the sale proceeds, which would reflect her greater contribution to the purchase price.
Many people have bought property in France in the name of one spouse only (for various different reasons; inheritance, protection of assets etc) thinking that later on they will be able to transfer the property into the joint names of both spouses. It is not possible to do this simply in France – a new transfer of the property will have to be carried out at the French Land Registry, a notaire instructed and paid and French gift tax may also have to be paid.
It is therefore important to think carefully about in whose name the property should be purchased, and explore all options before purchasing in the name of one spouse only.
Scenario 3 – I have property in England and France. I don’t want to leave anything to my children in my will. Can I do this?
Scenario 2 – Leaving French Assets to Step-Children