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The vente en viager is a curiously French invention. It is not well known in the UK but is regularly used in France where it accounts for a substantial number of property sales. It also has attractive tax angles for UK residents.
Please note that taxation and property are complex subjects and you should not take or refrain from taking any step without full independent advice on the particular facts of your case. The content of this article is of a general nature and no liability is accepted in connection with it.
How does it work ?
It is similar to an equity release scheme without necessarily involving an insurance company. Assume you own a French property, without any mortgage or other encumbrance. You are torn between wanting to realise the value it represents, on one hand, and wanting to continue to use it, on the other. The vente en viager allows you to do both. The buyer pays you a lump sum (the bouquet) and an annuity (the rente viagère) every year until you die. While you are living, you may continue to have the right to live in the property for all or some of the time. Once you (or a stipulated third party) die(s), the property becomes the buyer’s.
Are there any restrictions ?
The important element is that of “aléa”, or chance, at the time the sale is made. This means that the seller must not be terminally ill. Otherwise you are free to get the best deal you can.
What is the advantage of this ?
You continue to use your “place in the sun” until you die. But at the same time, depending on your life expectancy, you can realise a cash sum for your own use. However, whether you continue to occupy will be an element in the calculation of the sum you get, since if you continue to occupy, the buyer cannot !
What are the inheritance tax effects of this ?
If you continued to own your French property as before, but were UK resident, both French and UK IHT would be payable on it upon your death (French IHT would be credited against UK liability to avoid double taxation). If you sell it en viager your French estate on death will be nil. The bouquet will be part of your estate, but not of course if you make arrangements for it to leave your estate (e.g. place it in trust for grandchildren) or simply spend it! In practice you are probably best off repatriating the bouquet to the UK.
What about the reservation of benefit rules ?
They do not apply here, because you have not reserved benefit in the property, but rather sold it for good consideration, as part of a standard commercial transaction. It’s similar to equity-release schemes in the UK.
What’s in it for the buyer ?
It is similar to a life insurance company offering you an annuity. Obviously the bouquet and the rente viagère are assessed according to your life expectancy, amongst other things. The buyer hopes that you will die next week, and he will get a great bargain. But you may live to 120, in which case he will have made a bad bargain. This is his risk, and yours, to an extent.
Are there any famous cases of this ?
I thought you might ask this question. You may have heard of Jean Calment. She died aged 122, as the world’s oldest ever woman. When she was 90 (!), a businessman bought her property en viager for a monthly sum of some £300. He ended up paying out some £110,000, far more than the value of the property, and actually pre-deceased Mme Calment ! His estate had to continue paying out until her death.
Can joint owners sell en viager ?
Yes, there is no reason why not. However, the bouquet and/or the rente viagère will of course be less as the buyer must wait until the second death to attain full ownership.
Is forced succession relevant to this kind of sale ?
No. It is regarded as just as much of a sale as any other. The property leaves the estate and there is therefore nothing for the forced heirs to inherit, provided you are not French resident and repatriate the sale proceeds to the UK.
What other factors are relevant to the calculation of the bouquet and the rente viagère ?
For example:
- Whether the annuity will be indexed;
- How often it is to be paid; and
- Whether it is to be paid in advance or in arrears.
The figures must be reasonable or they can be attacked by the French Revenue, or the seller, or his heirs. Your notaire will be able to tell you what constitutes a reasonable figure.
Does the buyer have any rights over the property during my lifetime ?
Obviously, he has to protect his interest. This means you are, broadly, required to maintain the property in good condition. The general law may not cover certain particular situations which mean a comprehensive contract is necessary and desirable.
What are the tax effects of such a transaction ?
The deemed sale price consists of the bouquet and the capital value of the rente viagère. Stamp duty and capital gains tax are paid on this basis. Wealth tax is payable on the capital value of the rente viagère as if it were an asset.
Please contact David
Anderson by email or
on 020 7398 4700.