French Life Annuity (Viager) Property Investments?

Life annuity schemes or vente en viager can also be known as `reverse mortgages? or `lifetime mortgages?

Vente en viager involve property being purchased in exchange for a life annuity. The agreement may take different forms but typically it involves a down-payment or "bouquet" made at the start of the agreement and a "rente viagiere" which is paid from the date of purchase until the date the vendor dies. The investment risk is effectively unknown and dependent upon the length of time the vendor remains alive.

There are two broad types of Viager; Viager occupe and viager libre. Viager occupe agreements account for around 90% of all cases and involve the vendor (credirentier) occupying the property until death. Viager libre agreements allow the purchaser (debirentier) to take possession of the property immediately.

How do Life Annuity Investment Schemes Work in France?

The down-payment is agreed upon by negotiation and is based upon factors such as the property value and needs of the Vendor, thus they often vary in size and ratio. The size of the "bouquet" will in turn affect the amount of rent paid. Annuities can be made out against two people and so entitlement can be transferred to a partner if one of the vendors passes away.

The rent paid is calculated on the basis of the size of the down-payment, the value of the property, and the life expectancy of the Vendor. These calculations are based upon the average life expectancy in France and are laid out in French Law. The percentage used for the rent payments is banded in relation to the age of the occupier, with the payments increasing in line with the age of the credirentier.

It is standard practice to link the rent to the retail price index as set out by the INSEE and review it annually. Any increases are therefore proportional to the rise in the cost of living.

The buyer is responsible for any major property repairs, land tax and the fire insurance.

The agreement would be void if the rent is calculated for a credirentier whom dies within 20 days of the sale. The children of the Debirentier are responsible for the viager if the Debirentier dies during the agreement period.

Financial and Tax Benefits of Life Annuity Investments

Because life annuity investments are deemed as lower risk on average, buyers are still liable for stamp duty, local taxes and other associated purchase costs and do not receive any tax benefits. Most of the benefits are on the side of the property sellers whom receive the following significant tax reductions on Viager income:

• 30% reduction when up to 50 years of age
• 50% reduction when between 50-59 years of age
• 60% reduction when between 60-69 years of age
• 70% reduction when over 70 years of age

The rent received is also free of inheritance tax upon the death of the first partner when an agreement applies to a couple.

Advantages of Life Annuity Purchases

• The property is normally sold at a below market price.
• The rate of the annuity can often be lower than the repayments on a bank loan.
• Viagers property is often found in desirable locations such as Paris or the Cote d?Azur. Such schemes make the property more easily accessible and available at lower prices.
• The bouquet (down-payment) is often low in relation to the market value of the property.

Disadvantages of Life Annuity Investments

• There are only around 5,000 thousand purchases per year and thus the market is small.
• The rate of repayments is reviewed annually and is not fixed.
• Whilst it is very rare indeed, the vendor may outlive the buyer. The most famous example of this is that of Jeanne Calment. She agreed a viager in 1965 at the age of 90 but went on to survive until the age of 122, becoming the world?s oldest living human being, predeceasing the buyer of her property by 2 years.

French-investment-property.com recommends that you always contact a viager specialist or a notaire when considering a life annuity investment. They will provide the best source of information and will be able to consult you on the contractual agreements involved to ensure that your investment is trouble free.

Glossary of Terms

• Credirentier - The vendor of the property and person receiving the rent (viager).
• Debirentier - The buyer of the property (investor) and person paying the rent.
• Bouquet - The down-payment made at the start of the viager.
• Rente viagere ? The rent paid to the viager as agreed by the two parties (usually monthly or Quarterly), until death.
• Valeur venale ? The market value of the property when empty and the base figure used in negotiations.
• Valeur occupee ? The value of the property when occupied.

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