A tontine consists of several people purchasing a property with the understanding that ownership will pass to the surviving purchaser.
The surviving purchaser is not accountable to the heirs of the predeceased purchaser, except in the case of an indirect gift, in particular where there is a disparity between the contributions of the purchasers, or in the case of a disguised gift.
This type of acquisition gives rise to a double condition, namely a suspensive condition of survival and a resolutory condition of predecease.
Like a life annuity purchase, buying a property with a clause d'accroissement or de tontine amounts to entering into an uncertain deed.
Article 1104 of the Civil Code states that "where the equivalent consists of the chance of gain or loss for each of the parties, based on an uncertain event, the contract is aleatory".
In a tontine, the randomness lies in the order of death of the tontine holders.
Tontines are not really joint ownership. In particular, it is more restrictive for the tontine holders, who cannot leave it (through sale or division, for example) without a joint agreement. However, there is nothing to prevent the acquisition being accompanied by an increase or tontine clause from providing for certain events allowing the tontine agreement to be terminated. Similarly, the tontine could be for a fixed term.
Furthermore, the creditors of one of the tontine holders cannot seize the property acquired with an accretion clause or request partition. However, these comments must be qualified if the acquisition under a tontine constitutes a fraud on the rights of the creditors of one of the tontine holders.
When the accretion clause comes into effect, it is the transfer tax (inheritance tax in this case) that is payable, which is determined on the basis of the relationship between the purchasers, according to the rate applicable on the date of death.
In exceptional cases, transfer duties apply when the tontine relates to the main home shared by two purchasers, provided that its total value is less than 76,000 euros.
In this case, however, it is possible for the surviving purchaser to opt for inheritance tax, which is exempt (since the so-called "Tepa" law) between spouses or PACS partners.
In practice, this threshold of €76,000 is no longer consistent with the current property market and should certainly be re-evaluated.
A société civile immobilière (non-trading property company) can also avoid the application of tax on gratuitous transfers. In fact, the article imposing this tax only applies to deeds of acquisition and not when the increase clause is included in the articles of association of a SCI.
In practical terms, two people living together set up a non-trading property company (société civile immobilière) to buy a flat in Chambery. The non-trading property company's articles of association include an accretion clause granting the shares of the deceased to the surviving partner. This means that the death of the first cohabitee will not give rise to transfer duties, which are 60% for cohabitees!
For the purposes of calculating the capital gain on the property (in the event of a resale after the death that led to the increase), reference must be made to the original deed in which the increase clause is inserted, in order to take into account the price and date of acquisition. As the tontine has a retroactive effect, it would not be logical to use the date of death and the value of the property at the same time.
