Q I wish to buy a house in France 50/50 with my partner, to whom I am not married. We each have one adult daughter. When one of us dies, we do not want French inheritance laws automatically to pass the deceased's half of the house to his or her daughter. We would prefer that the surviving partner inherited the deceased's half on condition that he/she passed its value to the deceased's daughter. We are also anxious to minimise French inheritance tax. What is the best way to do this? I have heard that a “tontine” may help.

If you take no action, each daughter will be automatically entitled to 50 per cent of whatever her parent owned. As non-residents of France, holding the property in a French company known as an SCI will get round this, but not if you are resident in France. Otherwise, it is possible now for reserved beneficiaries to renounce their entitlement to inherit in favour of someone else, but this requires their co-operation. “Tontine” is a form of joint ownership that helps to avoid the problems of French inheritance law by enabling inheritance solely by survivorship. It can only be put in place at the time of purchase. This would avoid automatic inheritance by the first deceased's daughter (“A”). However, it will not avoid French inheritance tax between you, which since you are unmarried will be at a fixed rate of 60 per cent.

An alternative might be to accept normal inheritance rules and allow daughter “A” initially to inherit the underlying “bare ownership” (nue propriété) of her deceased parent's half share, but at the same time reserve the overlying use (the “usufruit”) of that half of the property for the surviving partner for life. When the usufruit ends on the surviving partner's death, the ownership of daughter “A” in that half simply becomes complete (pleine), normally with no further inheritance tax at that stage. Daughter “B” could then simply inherit her now deceased parent's half-share outright.

The usufruit and nue propriété have relative values when they come into being, reflecting the age of the surviving partner at inheritance. As the child must inherit at least 50 per cent of the deceased's half, this will only work in your case where the surviving partner can inherit the usufruit at age 51 or more.

There will be tax of 60 per cent on the partner's inheritance, but only between 5 per cent and 40 per cent on the child's after an allowance (currently almost €152,000). Although some tax must still be paid at 60 per cent on the first death, it is less than would be paid if the whole half-share of the property went to the survivor.

The writer is a senior adviser at Blevins Franks Tax Advisory Service

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