If you are about to buy an apartment in Paris, France from America, Asia, or elsewhere, you may have come across listings for "viager" and wondered what it means. Let's explore what buying a "viager " entails in France.
🥐 What is a "Viager"?
Viager is the French term for life annuity real estate transaction.
Selling a property as a life annuity involves a property owner (the annuitant: the one who receives the annuity) selling their property to a buyer (the debtor, the one who pays the annuity) who will pay the price in the form of an annuity. This annuity is called "life annuity" because it ends upon the death of the annuitant.
🥐 Occupied or Free Life Annuity?
It is possible and even common for the seller to occupy their home until their death. This is known as an occupied life annuity.
Conversely, a free life annuity allows the buyer to immediately occupy the property from the time of sale. The seller, on the other hand, no longer has to worry about paying property taxes, housing taxes (if it's not their primary residence), and any potential condominium charges.
If a couple is selling, it is possible to arrange for the annuity to continue for the survivor's benefit.
🥐 Payment of the Price: Annuity and Lump Sum
In a way, the seller extends credit to the buyer, either for part of the price if the buyer pays a lump sum called "bouquet," or for the entire price if there is no bouquet.
The notary also takes a mortgage called "legal mortgage of the seller" on the sold property, allowing the seller to recover their property in case of non-payment of the annuity by the buyer. The buyer will then repay their debt to the seller through installments (monthly, quarterly, or otherwise) whose number is not known in advance (since it depends on the annuitant's lifespan). Indeed, the buyer pays the annuity to the seller until the latter's death.
🥐 The Risk Factor
A life annuity sale is a gamble that can benefit either the seller or the buyer or be neutral. It all depends on the seller's lifespan.
The seller's date of death, whether soon or distant, represents a risk for both the seller, who might not live long enough to benefit much from the annuity, and the buyer, who might have to pay the annuity longer than anticipated if the seller lives exceptionally long. This risk, legally called "aleatory" is essential and mandatory for the validity of such a contract. A judge will annul a life annuity sale where the risk does not exist (for example: if the seller is ill at the time of sale and dies quickly from the illness, that is, within 20 days after the signing of the deed).
🥐 Life Annuity Sale and Inheritance
The seller's potential heirs will not inherit this property since it is no longer part of their estate. The decision to sell in life annuity, often motivated by the need to ensure financial security, is sometimes misunderstood by family members.
🥐 Buying in Life Annuity: Calculating the Installment
Although the number of installments is not known in advance, the amount of the first year's installments is fixed at the outset in the notarial deed. It is calculated considering:
- the value of the sold property,
- whether the property is free or occupied,
- the amount of any lump-sum payment (the bouquet),
- the age of the seller(s).
Then, the annuity is adjusted annually according to the variation of the construction cost index most often. Another index can be chosen under certain conditions.
🥐 Life Annuity and Income Tax
Part of the life annuity payments for valuable consideration is subject to income tax. This part varies depending on the annuitant's age at the time of the first annuity payment.
The taxable portion is as follows:
- If the seller is under 50 years old at the first annuity payment, 70% of the annuity is taxable;
- If the seller is between 50 and 59 years old, 50% of the annuity is taxable;
- If the seller is between 60 and 69 years old, 40% of the annuity is taxable;
- If the seller is over 69 years old, 30% of the annuity is taxable.
🥐 Capital Gains Tax and Life Annuity Sales
The capital gains tax regime is the same as for an ordinary sale. Notably, if you sell your primary residence, you will be completely exempt.
🥐 After the Sale, Who Bears the Expenses?
Once the sale is signed at the notary's, the property is no longer part of the seller's estate, who no longer bears the total burden. The notarial deed stipulates, depending on whether the property was sold occupied or free, who will pay for minor and major works, property taxes, and housing taxes.
🥐 In conclusion: Viager - Good or Bad Idea?
You should consult a French notary before making any decision about buying a viager in Paris, France. The notary will fully explain to you the rights and duties of each party in a life annuity sale.
I guide my clients through the entire process of buying properties, including finding viagers and recommending a notary who speaks english.
Viager in Cinema
For fun illustrations of what a viager may entail, I recommend you watch these films:
Le Viager - 1972 film by Pierre Tchernia
My Old Lady - 2014 film by Israel Horovitz
Happy property hunting, and may your French real estate journey be as smooth as a buttery croissant! 🥐 🇫🇷
As always, I love to read your comments and answer your questions.
Tomette Paris® is a Registered Trademark in France. INPI certificate number 24 5023079 dated 21 January, 2024.
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