Changing your French matrimonial regime
These notes apply not only to those who are thinking of buying real property in France (“French immeubles”), but also to those who already own French immeubles either as a holiday home or as a main residence.
As explained below, provided you are legally married (i.e. not cohabiting under a ‘common law’ marriage) and have no children by any previous relationships (i.e. any children are common to you both), the réserve légale rules of French succession law are avoided if you (re)structure your joint ownership of French realty under the régime de communauté universelle avec clause d’attribution intégrale de la communauté au conjoint survivant (“universal community”).
By adopting universal community the deceased’s French estate passes (rather like tontine ownership) to the surviving spouse, to the exclusion of any children of that marriage. Those children are not disinherited. Their rights of succession under French law are merely postponed until the death of the second spouse who meanwhile is at liberty to sell the French realty or otherwise do with it as s/he pleases.
Under universal community (and unlike tontine or any other joint ownership structures) a potentially more significant attraction is that the surviving spouse pays no French inheritance tax (“French IHT”) on the death of the first spouse.
The following hypothetical cases illustrate these and other important points explained below.
– Mr and Mrs A (“the A’s”) live in England (where they were married) with their two young children. They plan to buy a holiday home in France (purchase price over 150,000 Euros) and renovate it. The A’s have not made a French will.
– Mr and Mrs B (“the B’s”) live in Wales (where they were married) but plan to move permanently to their holiday home in France (worth more than 150,000 Euros). They have two children by their marriage and Mr B has another two children from a previous relationship. The B’s have not made French will.
– Mr and Mrs C (“the C’s”) live in Scotland (where they were married) with no children (by their marriage or by any other relationships). The house in France is owned in Mr. C’s sole name, and she has not made a French will. The C’s have not made a French will.
– Mr and Mrs D (“the D’s) live in Northern Ireland (where they were married) with no children by their marriage or by any other relationships. They plan to move permanently to their holiday home in France which is worth more than 150,000 Euros. The D’s have not made a French will.
Under French law the above four couples are classed as being married “equivalent to the French marriage contract of séparation des biens ” (separation of goods). When a spouse married under separation of goods dies leaving French immeubles, his or her children – by any relationship – are entitled to a percentage the ( réserve légale ) of that property. The surviving spouse may also be liable to French IHT if s/he inherits the quotité disponible of the deceased’s French estate.
A couple married in the UK can avoid these and other possible problems (for example, in the A’s case the French immeubles could not on the death of one parent be disposed of until the youngest of their children reached the age of 18) by changing from separation of goods to universal community. This is done by instructing a notaire to prepare a French deed (acte de changement de régime matrimonial) under the relatively simple provisions of the Hague Convention of 14 March 1978 (‘the Convention’) and Article 1526 of the French Code civil.
However, Article 1527 of the French Code civil states that any children who are not common to both parents can issue ‘claw-back’ proceedings in France (action en retranchement) which if successful will set aside the universal community and revert to separation of goods.
So, if Mr B dies, his two children by a previous relationship could end up owning two-thirds of their late father’s French estate with Mrs. B. Most notaires will therefore refuse to accept instructions to act on behalf of the B’s, and will only act in cases where (like the C’s) the couple have no children or (like the A’s) only have children common to both parents. The B’s case is not hopeless. There are usually ways and means in their case (although more expensive) of avoiding both the problems of the réserve légale and French IHT.
Although no French IHT is payable by the surviving spouse on the death of the first spouse (otherwise based on one half of the net market value of the French immeubles at the date of death), French IHT will apply on the death of the second spouse. This means that the current tax-free allowance of 46,000 Euros per spouse and per child cannot be used on the death of the first spouse, and can only be used on the death of the second spouse.
Transfers between husband and wife are not exempt from French gifts tax, so that when property belonging to one spouse is given to the other, French gifts tax is payable. However, where universal community property becomes the property of one spouse as a result of a liquidation of the community (e.g. because of the death of one spouse), a registration tax of only about 1.6% is payable.
For most married couples (e.g. the A’s, B’s and D’s) no French stamp duties are payable when adopting universal community. However, in the case of the C’s a stamp duty of 4.89% is payable (plus notarial fees) in transferring ownership from a single name into joint names.
Once universal community has been adopted, it cannot be altered for at least two years.
The Convention only applies if the married couple are not French domiciled (French meaning). If they are domiciled in France (as the D‘s intend to be) the procedures involved to adopt universal community are much more complicated and expensive and require the homologation (approval) by the French Courts.
In the D’s case they could therefore change to universal community (using the Convention for their French immeubles) while still domiciled in Northern Ireland.
Other assets such as their furniture and bank accounts in France, and their other property worldwide (if any) cannot be governed by universal community while they are domiciled outside France. Once they are French domiciled, however, they can usually subsequently add these other assets to the acte de changement de régime matrimonial (usually after a delay of two years from the date of the original acte) without going through the homologation and other procedures referred to above. Similarly they can expressly exclude from the effects of universal community any particular asset (e.g. the jewellery inherited from my grandmother) when the new marriage contract is adopted.
In the C’s case ownership of the French immeubles currently registered in Mrs C’s sole name should be transferred and registered into the joint names of both Mr and Mrs C, and universal community applied for now while they are still domiciled outside France. If either spouse then subsequently dies owning French immeubles, a French deed known as an attestation immobilière for the property originally held by one spouse only before adopting universal community must be prepared by a notaire whose fees are calculated by reference to the market value of the property at the date of death, in addition to which a duty ( taxe de publicité foncière ) of 0.615% of market value and a further duty ( salaire du conservateur des hypothèques ) of 0.10% of market value is also levied. These fees and duties do not apply to the A’s, B’s or D’s because ownership was always registered in their joint names.
Universal community becomes effective as between the spouses as from the date of the acte de changement de régime. As between the spouses and any third parties, it takes effect once it has been noted (if the couple are not French domiciled) by the notaire at the répertoire civil annexe tenu auprès du service central d’état civil du ministère des affaires étrangères in Nantes. If the couple are domiciled or married in France, the acte de changement de régime must be noted against their marriage certificate at the relevant bureau d’étât civil (Article 1397-6 of the French Code civil).
All married couples owning realty in France should make French wills. The need for this is not replaced by universal community because (although unlikely), if the spouses should die together, the administration of the French estate with no French wills is more complex and expensive to administer than if French wills have been made.
The only alternative way to avoid the problems of French succession law (if you are not French domiciled) and the need to make French wills is to form an SCI to own your French immeubles. However, apart from being much more expensive to form and run than universal community, an SCI comes with a variety of legal and tax “viruses” (especially if it is intended to make rental income from furnished lettings) in France and/or the UK which should be fully understood before progressing this alternative route. The only circumstances where I usually reluctantly recommend its use are either where French immeubles are being acquired by two or more unrelated couples (with or without minor children), and/or one or more of the shareholders wishes to disinherit one or more of his children.
Stephen Smith is a bilingual French national who specialises in French estate and tax planning matters. For a French property ‘health check’ and peace of mind, please contact him at Stephen Smith (France) Ltd, 161 Cemetery Road, Ipswich IP4 2HL. Telephone 01473 437186
; Fax 01473 436573; E-mail: firstname.lastname@example.org Website: www.stephensmithfranceltd.com