Charlotte Macdonald is an associate solicitor in Stone King’s international and cross border team. Over a 12-part series of articles Charlotte will answer legal and practical questions that are often asked by her clients in relation to buying or selling property in France, inheritance law, and how inheritance and capital gains tax are treated between the UK and France.
Although it is possible for a British national to make a will in France stating that they would like their share of their French home to pass to their partner when they pass away (by making an election for English and Welsh law to apply in their will), many people want to know if there is another way of making sure their partner inherits their home on their death.
What Happens in England?
When buying a property jointly in England you are given two choices:
1. Buy as ‘tenants in common’. If you choose to buy your property this way you and your partner will be seen to have your own distinct share in the property. This could mean owning the property equally 50/50, or you could choose to own unequal shares, likely to represent the respective amount each party contributed to the purchase, such as 20/80.
On your death, your partner does not automatically become the owner of 100% of the property. You could choose to leave your share of the property under your will to a third party.
2. Alternatively, you could buy your property as ‘joint tenants’. If you buy the property this way, you and your partner are treated as owning the whole property together.
This means, on your death, your partner will automatically become the owner of the whole property. You are not able to leave your ‘share’ of the property to anyone else under your will.
French Law – Tontine Clause
In France when buying a property with another person, the majority of people will buy it ‘en indivision’. This type of property purchase is similar to buying as ‘tenants in common’ in England. On your death, your share of the property will not automatically pass to your partner.
An alternative way is ‘en tontine’. Buying a property in this way is a little like buying a property in England as joint tenants. When you pass away, the property is seen as having belonged to your co-owner from when the property was purchased.
The advantage of buying a property en tontine is that on your death, your partner will automatically become the sole owner. It is important to note that this clause must be added at the time of purchasing the property, it is not possible to add a tontine clause at a later date.
Notaires will often be reluctant to include a tontine clause, as it restricts flexibility in how you can leave the property and can in some circumstances increase the amount of French inheritance tax payable by your beneficiaries.
In the past, tontine clauses were often used to try to bypass the French forced heirship rules by English couples. However, since the introduction of the EU Succession Regulation (and with it, the ability for British nationals to elect English and Welsh law to apply in their will) tontine clauses are not so commonly used by British purchasers.
French Law – Matrimonial Property Regimes
Another way of ensuring that your property passes directly to your spouse on your death is to have an official matrimonial property regime in place.
We don’t have these in England but they are very common in mainland Europe. They are in some ways similar to a pre-nuptial agreement; in that the spouses agree how to split their assets on divorce or death.
As we don’t have matrimonial property regimes in England, English married couples in France are treated as having a regime of separation of assets. This means that you are treated as owning your assets separately.
Another option in France is a community of property regime, where all assets owned by the spouses are deemed to be owned jointly.
Until earlier this year, it was possible to enter into a matrimonial property regime in France in relation to your French assets only, and it was common for English married couples to enter into a community of property regime, with a clause confirming that the survivor of them will automatically inherit their spouse’s assets.
However, in January the law changed in Europe.. It is now no longer possible to enter into a matrimonial property regime that affects only your French property, although existing regimes are not affected by these changes.
So, ‘will my partner automatically inherit my share of our home in France when I die’? As demonstrated above, the answer is ‘possibly’.
To answer this question fully you will need to look at whether you entered into a French matrimonial property regime, and whether you bought your French property with a tontine clause.
If you haven’t done either of these, even though your partner may not automatically inherit your share of your French home when you pass away, you may still be able to make a will that does ensure your partner receives the property on your death.
For more on how your estate will be affected by inheritance tax on your death, please contact Charlotte Macdonald, Dan Harris, Raquel Ugalde or Harriet Burt at Stone King LLP either by calling +44(0)1225 337599, or via email.