Back to basics

When thinking of purchasing a property in France, it is important to consider the fundamental legal factors to bear in mind so let’s go back to basics and give an overview of the legalities involved in a cross-Channel purchase.

It will come as no surprise that the first point mentioned is that you should instruct a firm of solicitors specialising in French law to advise you throughout the transaction. It is true that there will also be a lawyer in France who will have to be involved in the transaction and as the buyer, you will have to pay his fees. Nevertheless, the overriding objective of this lawyer – the notaire – is the correct negotiation of the property into your name and the correct payment of taxes. The fact that there is generally only one notaire involved in the transfer must prove that he is not acting only in your best interests, as your solicitors would; he is ‘the notaire’, not necessarily ‘your notaire’.

However, the solictors you choose should be experienced in French law, and naturally fluent in both French and English. They will be used to working with notaires and thus the installation of another lawyer should actually improve the transaction, not hinder it. Certainly your understanding of the process – and the relevant inheritance law issues – should be greater. It must be remembered that buying a property in another jurisdiction will have legal implications in both France and the UK.

For a start, French inheritance law differs substantially from the situation in the UK. Since France prefers property to pass along bloodlines, it is not always possible to favour the surviving spouse – as is the common scenario in the UK – without substantially disadvantaging one’s children. This is especially the case if you have been married before, with children from the previous relationship. In such a case, French law would expect those children to inherit at least a part. It would require considered planning to ensure that the surviving spouse would inherit all of the property.

Tax allowances

And yet, even if you do leave all to the survivor, this is likely itself to lead to potential tax disadvantages, whether in France or in the UK – or both. Since France wants property to pass along bloodlines, it applies inheritance tax at increasing rates (and tax allowances at decreasing amounts), the further one moves away from a legacy passing from parent to child. Thus a legacy to siblings is subjected to higher tax than to children; to nephews and nieces higher still; and so on to the point where a legacy is left to an unrelated person, at which point the rate of tax is 60 per cent.

It follows from this that a gift to an unmarried partner is subject to inheritance tax at 60 per cent and a gift to stepchildren is taxed at 60 per cent. Unless actually adopted, a stepchild is treated as a stranger in blood, and has to pay the highest rate of tax.

Since children (as opposed to stepchildren) have, in principle, to inherit a fixed minimum amount, a lack of careful planning can lead to a double penalty – they may share between them a smaller amount of a deceased’s estate, upon which they would still have to pay tax at 60 per cent.

Take, for example, a situation where a married couple, each with two children from a previous relationship, wanted to ensure that the surviving spouse would inherit the whole property absolutely, then split the estate between all four children on the second death. This would be a relatively common format in England and Wales. However, in France, the result is that the children of the second person to die would inherit two-thirds of the property upon which they would pay limited or no tax. The children of the first to die – not the surviving spouse’s children – would have to divide the remaining one-third between them, and on this they would pay the maximum rate of tax.

This scenario can be avoided if estate-planning matters are suitably considered in advance of the purchase. It is certainly not the case, however, that all is lost. There are many options available to address the situation, although these must be carefully considered taking into account your personal situation, and given the relevant UK and French inheritance rules and taxes.There is a need for a detailed consultation with your solicitors well in advance of you signing your compromis de vente or contrat de réservation.

Signing the contract

This brings us then to the question of the contract itself. Once you find your dream home, it is most possible that the agent will prepare the initial contract. Indeed, while some people may suggest that the notaire is the only lawyer who need be involved in the purchase, it is a fact that he or she may well only have any idea about the whole transaction a good while after the contract is fully binding upon you and there is no room for any amendment; hardly a suitable arrangement for best scrutiny of the contract. For such scrutiny of the contract, your own independent solicitor would naturally, therefore, be invaluable.

The contract will normally need to have various documents attached to it, including various precontract searches. These searches do not replace the need for having your own independent surveyor to inspect the property before you complete the contract. This survey will reassure you that the property is as you expected and that there are no major structural defects. And if there are, having the survey before you sign the contract will allow you to renegotiate or withdraw if you wish.

Presuming, however, there are no problems with the property, signature of the initial contract will generally lead to completion of the sale in around 2 months, which is the time it takes for the various conditions of the contract to be satisfied. When the first contract is first signed, it is subjected to various conditions that must be cleared before the sale can complete. These include, for example, a confirmation that the buyer can obtain a mortgage if required, that certain third party rights would not be exercised to the detriment of the buyer, and that there are no existing charges registered against the property that could not be discharged from the proceeds of sale. If these conditions cannot be satisfied, you would be able to obtain a full refund of your deposit.

Once the notaire is ready to complete, you will be invited to his office to sign the acte de vente – the sale deed. The notaire may well arrange for a translator to be present, although again it is preferable for the documents to be considered by your solicitors who will report to you on their terms. Your presence is not always necessary – you can occasionally complete by power of attorney. However, it would generally be preferable to attend.

Ashton Graham
www.ashtongraham.co.uk/france