William and June are married British nationals. Shortly after their marriage, they purchased a house in France which they regularly visit with their two children. Their eldest son, Henry, will graduate from university this year, while their youngest, George, is sitting his GCSEs.
William and June have starting thinking about making wills. Assuming that they purchased the property in their own names they can make an election to apply UK laws to the succession of the house because they are British nationals. So far, so simple.
Understanding forced heirship
If they do not make an election, local laws will apply and these can sometimes have a surprising effect. In the case of France, and indeed most of Europe, local laws apply a system of “forced heirship” in the event of an owner’s death. This means the owners cannot leave the property to whoever they would like as would be the case in the UK. Instead, local laws dictate that bloodline descendants must inherit and the rules set out who and in what proportions benefit is taken.
Provision is usually made for surviving spouses in the form of a life interest. Sometimes forced heirship is not a problem and the rules reflect what the owners would have done given absolute freedom. However, occasionally forced heirship laws can cause complications.
In this case, June is William’s second wife and he has another son, James, from his first marriage.
Important differences in French and UK law
If William and June purchased the house en tontine (which is a somewhat analogous to joint ownership under English law) then French law would treat June as having always owned the property in the event that William were to die first. On her death, June’s bloodline under the forced heirship rules would benefit, but James is not of June’s bloodline and so he would not benefit.
On the other hand, if June elected to apply UK law then she would have freedom to benefit whoever she wished, provided she looked after her dependants, and so could benefit James if she wishes. No solution is perfect because of the risk of June and James falling out, but James can at least in theory be a beneficiary of the property under June’s will if she makes an appropriate election.
Benefits of a Societe Civile Immobiliere
Another option would be for William and June to have purchased the house through a corporate structure such as a Societe Civile Immobiliere (SCI), which is a type of French property company. They would then own shares in a company holding a property and those share, as moveable assets, would pass in accordance with the laws of England & Wales, being the law of William and June’s domicile (ie, where they are most closely connected to).
The SCI works well where there are multiple family owners and where ownership may change hands through successive generations and is often simpler and cleaner.
The SCI would own and manage the house and has a distinct legal identity from its shareholders (the family) but it is fiscally transparent in terms of tax and each individual is taxed on their share.
It can also be used to hold multiple properties which are let out to provide an income but if you own a UK portfolio of properties they are accounted for separately. An offshore company holding offshore real estate will not be subject to the various UK tax rules which seek to penalise non-domiciliaries for holding UK real estate through corporate structures. Of course there are double tax agreements between the UK and France which often help too.