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Corsica OKs crackdown on holiday home buying

In an effort to calm real estate speculation, Corsicans approved new restrictions on Friday that would require people to live on the Mediterranean island five years before they can buy property.

Corsica OKs crackdown on holiday home buying
Corsican lawmakers want buyers to live on the island five years before they can buy property. Photo: kjunstorm/Flickr

Anyone wanting to buy property on Corsica will have to have lived there for five years under proposals approved Friday by the French Mediterranean island's assembly.

A proposal which supporters say is essential to prevent indigenous islanders being priced out of their homeland was approved 29-18 with four abstentions in a vote at the left-dominated regional assembly whose extensive powers include housing policy. The bill must still be approved by the French parliament. 

The proposal was initiated by the chairman of the island's executive committee, Paul Giacobbi, who said it was designed to counter those inclined to invest speculatively in the largely unspoiled island's property sector.

“It’s time we had some kind of regulation and asking people to live here for a certain amount of time before they are allowed to buy a property is a good way to do it and a very good way of ending property speculation in Corsica," Giacobbi told The Local previously“I am not against foreigners. My family and wife come from abroad. Corsica is a land that welcomes foreigners.

Around 40 percent of properties on Corsica are second homes owned by people living off the island. The island currently has a population of 310,000, a majority of whom are incomers, and the number of residents is growing at a rate of 4,000-5,000 a year.

That trend, coupled with Corsica's outstanding natural beauty, has fuelled a strong demand for land for development and the money to be made from it is said to be a factor in the feuding between criminal gangs which have given the island a very high murder rate.

There have been more than 40 assassination-style killings on the island since the start of 2012.

Under the proposal approved on Friday, Corsicans living and working away from the island will be exempted from the residency requirement.

"This provision is key, it confirms the link between the Corsican people and their land," said Gilles Simeoni, the mayor of the port city of Bastia who heads an 11-member group of moderate nationalists in the assembly.

The proposal is subject to approval by France's parliament and may also face challenges in the French courts or through the European Court of Justice from those who view it as discriminatory, prejudicial to their economic interests or contrary to the principles of the free movement of people within the European Union.

Restrictions on second home ownership are not unprecedented in the EU however. Denmark notably has strict rules governing who can buy holiday homes on parts of its coastline which are widely regarded as being designed to prevent the areas from being overrun by second home owners from neighbouring Germany.

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PROPERTY

French property: What is buying ‘en tontine’?

If you're buying property in France, you might be thinking about buying 'en tontine' - this has advantages especially when it comes to France's strict inheritance laws, but can also have tax implications.

French property: What is buying 'en tontine'?

What is it?

The ‘clause de tontine’ sometimes also known as a ‘clause d’accroissement’ is a clause that is inserted into the property deeds when you are buying a house or apartment.

It can only be inserted during the purchase, and cannot be added later.

It’s basically a ‘group purchase’. It’s most commonly used by unmarried couples who are buying together but it can be used by larger groups too – for example a group of friends buying a holiday home together.

You will have to ask a notaire to draw up the tontine clause during the property purchase and it can only be used if 

  • the parties are equally involved in the financing of the purchase
  • the parties involved have a roughly equal life expectancy (for this reason tontine clauses may be rejected if there is a significant difference in age between the purchasers)

What’s the point of it?

The main reason that people use it is to sidestep France’s strict inheritance laws, which assign that a certain portion of every estate must go to children, at the expense of a partner. 

READ ALSO How France’s strict inheritance laws work

For this reason it is particularly used by couples who have children from previous relationships.

On a property with a tontine clause in effect, when one owner dies their share of the property passes in its entirely to the other member/members of the tontine.

This cuts out children from inheritance, but means that a surviving partner is not evicted from their home in favour of the children of the deceased. 

It also has the advantage of making the intentions of the deceased clear, to avoid arguments among heirs after their death.

It should be noted, however, that the tontine clause only takes in the property that it covers – other assets may be subject to French inheritance law so it’s therefore probably wise to arrange a will, to ensure your wishes for your estate are met.

The surviving party can ask a notaire to update the property deeds to show that they are the sole owner, if they want. Be aware there will be a fee, which could reach four figures for the privilege – and it doesn’t actually involve any change to the property title.

Drawbacks

The advantages of the system are clear, especially for blended families, but there are some potential drawbacks too, which mean that anyone considering buying in this way would be well advised to take proper legal advice before they start.

Inheritance tax – while a tontine will help you to avoid restrictions on inheritance, it does not exempt you from inheritance tax. French inheritance tax is structured according to your relationship to the deceased, and people who are neither married nor related to the deceased pay an eye-watering inheritance tax rate of 60 percent.

The only exception to this top rate of inheritance tax is if the property is your main residence and it is valued at under €76,000 – in that case, tax is paid at a rate of 5.8 percent.

Married couples and family members pay a much lower rate or not tax, but if you’re not married to your tontine co-purchaser, be careful that you’re not lining yourself up for a massive tax bill in future years.

Wealth tax – depending on the value of the property, it could tip you over into the ‘wealth tax’ category when you inherit. France’s wealth tax is a real estate based tax and is levied on anyone who has real estate assets (property and land) worth €1.3 million or more.

The calculation includes property held en tontine.

Tax savings – you might hear tontines being advised as a way to limit your French tax liability.

While this used to be true, changes to tax laws means there are no no significant tax advantages to buying this way – the same is true for buying a property via an SCI, which used to represent a tax saving until the law was tightened up.

Disinheriting family membersOne side effect of the tontine clause on mixed families is to effectively disinherit any children of the first person to die.

Because the property passed to the survivor, under French law, only their direct descendants – rather than any family by marriage – are entitled to automatic inheritance.

That means that the children of the surviving partner will be entitled to the statutory share of the entire asset (between 25 and 30 percent depending on the number of children), but the children of the first person to die will be entitled to nothing. Obviously you can choose to leave them something in your will, but you can only leave them some or all of the estate which is not automatically given to the children on the survivor.

Divorce/dispute – if the members of the tontine split up or (in the case of friends) fall out, then they can either sell the whole property or agree to buy each other out.

However, if one party refuses to sell, then you have very limited legal options – unlike a standard property purchase a tontine is not regarded as joint ownership, so one partner cannot be forced to sell as part of a divorce procedings, for example.

Basically the tontine can only be ended or changed with the agreement of all parties – so if you can’t agree between yourselves then you may be stuck with it.

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