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VAP informes you

How to buy as a couple?

Solutions for buying as a couple when you are not married.

 

Despite the introduction of the “PACS” where an unmarried couple (same sex or different sex) can receive benefits as if they were married, life as a couple is not always simple from a legal standpoint, especially when it comes to investing. There are many solutions available to couples who would like to purchase together while living in the same household.

Solutions for buying as a couple when you are not married:

  1. Joint Name
  2. The Société Civile Immobilière
  3. Purchase of "Dismemberment"
  4. The Tontine
  5. The Pact of Civil Solidarity (PACS)

Joint Name:

This is the solution that is the most well known. In buying a property together, couples who live together in the same household can purchase in joint name. It does not indicate, however, that each has an equal share in the purchase. The agreement specifies in which proportion each owner has in the property, whatever the method of acquisition, in particular with respect to the loan.

To the extent possible, it is more prudent that the legal distribution of the property correspond as closely to the reality depending upon each partner’s contribution, for two reasons:

  1. In the case of a disproportion share, the tax authority could perceive that the grant of ownership is disguised as a donation and claim the right to tax the gift at a rate of 60%.
  2. In the event of a separation, if a partner wants to recover his contribution, he will have to provide proof of his contribution and thereafter demonstrate the funds were obtain through a loan and not through a grant of assets.

If the partners have signed a pact of civil solidarity (PACS) before buying a property, they are owners in joint name, each owning half of the property, except where indicated to the contrary in the purchase agreement and/or through a contract they have signed among each other. This is the case even if one of the two contributed more to the acquisition.

If the partners want to avoid these disadvantages, it is better to prepare a trust deed at the time of the signature of the act. Nothing precludes the concerned partner, either thereafter, from signing an acknowledgement of debt to recognize that debt through a clause in his will.

The disadvantages of joint name ownership:

Joint name ownership presents, as we know, one major disadvantage: Each owner can demand to sell their share in accordance with the Civil Code which states, “no party can be forced to remain in joint ownership”, (article 815).

Contrary to marriage, where, at a minimum, a divorce is required to force a sale of a family property in the case of dissention of the marriage, the free union is more fragile: through litigation, at a minimum, the partner can force a sale.

It is the same in the event of the death of one of the two partners: his heirs (beginning with children, failing this, brothers or sisters), find themselves in joint possession with the surviving partner; consequently, they can force a sale of the property. There are several possible solutions to limit this risk:

  1. The partners can sign a “convention” of joint ownership at the notaire’s office. For a maximum period of five years, this convention (which is renewable), prohibits any sale, or portion thereof, through a forced event. This document is particularly useful in the event of death.
  2. The partners can sign a pact of civil solidarity (PACS). As with a surviving spouse, the surviving partner who signed the PACS can, in effect, request from a judge, preferential attribution of the property, thereby making a payment to the heirs of the other partner. However, this attribution is left at the discretion of the courts.
  3. The partners can include a clause to allow the repurchase the property of the surviving partner. In this case, the latter will have the right to buyout the late partner from his heirs.
  4. The partners can include a clause of protective rights in the purchase agreement (see hereafter).

Another disadvantage of this type of union as compared to marriage, the transfer of shares between partners is subject to registration taxes at a normal rate (approximately 6%/7%).

The Société Civile immobilière (SCI):

It is sufficient, before the purchase, to create a “Société Civile Immobilière” (SCI) while contributing capital equal to the amount of the transaction. It is the SCI which will be the owner of the property; the partners hold shares in the SCI. This solution presents many advantages:

  1. Consisting of shares, the inheritance is more easily shared.
  2. With respect to succession, the SCI protects the rights of the surviving partner: the heirs of the late partner have minority interest in the entity, since the decisions are made by majority as stipulated in the statutes.

However, this is not a long term solution. From a tax perspective, the surviving partner remains at a disadvantage: the transfer shares by transmission or donation of the SCI or property remain very expensive.

The solutions offered by an SCI are nonetheless interesting. However, the disadvantages are not negligible: the operation of an SCI is somewhat cumbersome and involves annual administrative and accounting fees.

Purchase of “Dismemberment”:

This legal structure is only possible through ownership of shares of an SCI where the property comprises two lots of the same value, constituting the same dwelling. One of the parties owns the “shell property” of 50% and the other the “user fruits” or right to use of 50%, or vice versa.

This can be explained by the following example:

  • Howard and Dan, or Mark and Sophie can create an SCI by receiving a distribution of the user fruits and the shell property for 100 shares. One purchases the user fruits beginning with share Nº1 to 50, and the shell property of shares Nº51 to 100. The other buys the user fruits of share N°51 to 100 and the shell property of shares N°1 to 50.
  • If the first partner dies, the other will recover the freehold of share N°1 to 50 and will preserve the user fruit of share N°51 to 100, whose property will be distributed between the heirs to that which is deceased. The surviving partner will be able to thus preserve the full benefit of the property until his death.

With respect to the property, the principle is the same, to ensure that the protection is equivalent, the property consists of two lots of identical value, joined together to form one property. One of the parts is the owner of the shell property indicated as lot 1 and the user fruits of lot 2. The other partner is the owner of the sell property of lot 2 while owing the user fruits of lot 1.

This type of arrangement requires the counsel and participation of a notaire.

The Tontine:

The tontine or “clause of cumulative ownership” intervenes when several people buy the same property, furniture (contents) or building, jointly. Included in the agreement, it provides that the property will return in freehold to the last of the surviving partners, after the death of all the other joint buyers. The surviving partner is presumed to have been the sole owner the property from the date of acquisition, the other joint partners who will have died before him, are presumed to have never owned the property.

This legal "pretext" has one important consequence: the property is presumed never to have been formed as part of the inheritance of the deceased partner(s). There is no "transmission" between the deceased partner(s) and the surviving partner. Not made part of his (their) succession, the property is thus exempt from the rules relating to inheritance.

The tontine is thus an effective means to ensure the future of the surviving spouse, the value of the property notwithstanding.

On the other hand, if the value of the property does not exceed 76 000€, the beneficiary does not pay inheritance tax. This formula, compelling in its principle, is much more rigid than the joint ownership or SCI. Each owner requires the agreement of all parties to sell, or await the death of each partner . . .

The pact of civil solidarity (PACS):

The signature of a PACS between two partners does not materially change the purchase of a property: it is simply a purchase in joint ownership, presuming the financing in equal parts, except when it is stated to the contrary in the act of acquisition and/or through a contract that links the partners.

Conversely, the “pacsed” partners benefit from a tax advantage relating to donations and successions. The estate is subject to transfer tax, after an allowance of 57.000€. And the net amount, after the allowance, is subjected to a tax of 40% for the portion less than 15.000€ and a 50% thereafter. The transmission of inheritance between two partners who are not “pacsed” is subject to a tax rate of 60% without an allowance.


In conclusion, in order to choose the formula which will be best suited for you, you should consult a professional and give him all the elements of your project: whether you intend to purchase alone, as a couple or group, to live in or to rent, within the framework of a PACS, a marriage or a free union, etc... The various solutions set forth herein, can for some, overwhelming.
 

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