French inheritance laws and taxes complicate property ownership by an unmarried couple.

The forced heirship rules in France mean that where there are children, whether from within or outside of the relationship, they have a right to inherit part of the deceased's estate.

The surviving partner has no automatic legal right to remain in the property, and the children, if they wished to, could enforce its sale.

In addition, there is no inheritance tax allowance for a couple who are neither a married couple or in a civil partnership. A high tax rate also applies, with the surviving partner subject to tax at the rate of 60% on the estate of the deceased!

Most of the options available are beset with difficulties of one kind or the other, although a solution can normally be found.

Since 2015, as a result of a new European law, it has been possible for owners of French property, through a will, to adopt the law of their nationality for succession purposes.

Inheritance is less regulated in most other countries, notably in the USA and the UK, where there is complete testamentary freedom.

However, as we have pointed out previously, the European law is not currently operative in France, and, even if it were, it does not grant exemption from inheritance taxes, so the 60% rate of French inheritance tax would still apply on assets inherited by the surviving partner.

Another option is to use a tontine clause inserted in the deed of sale, a somewhat artificial legal concept, under which there is no recognition that each owner has a separate share in the ownership of the property.

On the of death of one of the parties the surviving owner becomes sole owner and is retrospectively regarded as having been so since the acquisition of the property. It then escapes forced heirship rules.

However, this means that on the death of the surviving partner only the blood/adopted children of the deceased would have an automatic right to inheritance. For this reason some notaires refuse to use it where this applies.

In addition, it does not entirely deal with the problem of inheritance tax, for there is liability to inheritance tax at the rate of 60% if it is the main residence, provided it is valued at over €76,000.

One other alternative is to consider buying on a crossed-ownership basis, in a legal ownership structure called démembrement croisé.

This type of structure splits legal ownership of the property between bare ownership (reversionary interest) and the right of use (usufruct) of the property, with a cross-over of rights between the two owners.

Thus, one person buys bare ownership of half of a property and the usufruct of the other half, whilst the other buyer does the reverse, buying the usufruct of the half held by the first person in bare ownership and the bare ownership of the half they hold in usufruct.

Through this arrangement, each person holds bare ownership of their own share and the usufruct of the other.

Upon the death of one of one of the owners, the other recovers the usufruct of the share they already own in bare ownership, without liability to inheritance tax.

The survivor then owns full ownership of half of the property and the usufruct of the other half (which they already held). The heirs of the deceased partner would retain only bare ownership of half of the property.

Example: John holds the bare ownership of Parts A and the usufruct of Parts B. Mary possesses the bare ownership of Parts B, and the usufruct of Parts A. If John dies, Mary will automatically receive the usufruct of Parts B (of which she has the bare ownership) giving her the full freehold of Parts B, with the heirs of deceased bare ownership of half of the property.

This means that the surviving partner can continue to remain in the dwelling because they have a right of enjoyment over the whole dwelling.

Although the use of such a structure is frequently done through the shareholding structure of a French property company (Société Civile Immobilière - SCI), it can also be done through direct ownership of the property.

The use of this clause would mean that the inheritance is shared between the children of both partners.

The problem with the structure is that it does not get around inheritance taxes for those in free union, when the 60% rate of tax would apply, albeit in most cases on a discounted basis. The exception to this rule is where the owners were non-resident, when the laws of their home country would govern liability to inheritance tax. In the case of UK and US residents, however, inheritance tax would be payable on the whole of the estate, as this ownership structure is not recognised by either country.

If joint ownership of the property is not a suitable solution, then it would be possible for the owner of the property to bequeath in their will the life interest (usufruit) of the property to their partner, whilst simultaneously granting the reversionary interest nue propriété.to their children. On the death of the partner the children would succeed to the full freehold of the property. The value of the usufruct cannot, however, apply to the reserved part of the estate belonging to the children of the deceased. Granting the usufruct to the partner would also give the surviving partner a right to part of the proceeds of the property where it to be sold in their lifetime, which may or may not be desired. There would also be a liability to inheritance tax at the rate of 60% on the usufruct on the death of the owner.

If shared ownership of the property was not a suitable solution, then an alternative would be for the property to be purchased in the name of only one of the partners, and for the remaining partner to be granted a tenancy for life in the property. This might be either through a tenancy or a licence, such as a prêt à usage. They would then occupy the property as a tenant/licencee, with a right, after the death of their partner, to live in the property for life. The provisions of the agreement would need to cover what would happen in the event of a breakdown of the relationship during their lifetime. The owner could simultaneously, through a will, bequeath the inheritance of the property to their own children.

As the surviving partner inherits no real estate there is no inheritance tax liability, the great advantage of this option. Alternative arrangements could be made to deal with financial support to the partner, eg assurance vie.

Finally, the couple could consider entering into a civil partnership either in France or another country.

A civil partnership would grant greater protection to the surviving partner, although not the right to occupy the property for life, unless they were a joint owner. Most importantly, it would grant exemption from liability to French inheritance tax on assets inherited by the surviving partner.

If you seek personalised advise on any of the issues raised in this article, you can contact our Property Clinic, and one of our advisors will get back to you.