Selling in viager is the choice of many seniors to receive a significant capital sum and a monthly indexed and tax-free annuity.
The advantages of viager for the seller include:
- Immediate access to capital
- A regular and guaranteed annuity, in addition to the pension
- Ability to continue living in the property (life annuity occupied)
- Avoiding management hassles with tenants (life annuity free)
- Protection against inflation through indexation
- Reversibility or increasing the annuity payment to 100%
- No real estate agency fees
- The market value of the property
- The age of the seller(s)
- The amount of the bouquet (initial lump sum payment)
- Number of sellers
- The limitation of the annuity payment duration
- Sale in full ownership or with reservation of usufruct (life annuity occupied)
- Interest rates
No, the annuity is tax-free when paid by an individual. It results from a real estate sale that is not subject to taxation, so it does not count as income for tax purposes. However, if the buyer is a legal entity, the annuity will be taxed at the current rate of 30% of 3% of the abandoned capital. In this case, the legal entity will have to pay an additional annuity to the seller to compensate for this taxation.
The bouquet is a sum of money paid by the buyer to the seller at the time of the authentic deed. It acts as a down payment on the sale price. Note that the larger the bouquet, the lower the annuity will be, and vice versa.
In the event of the buyer’s death, the responsibility for paying the annuity falls to their heirs and beneficiaries until the end of the agreed-upon term in the contract. Buyers with young children are advised to take out life insurance that will cover the payment of annuities in case of their death.
In the event of the death of one of the spouses, the annuity continues to be paid in full to the surviving spouse. This is referred to as a “reversible annuity” or the annuity’s reversibility.
The contract includes a resolutive clause or “pacte commissoire exprès,” which states that if the annuity is not paid within two months of its due date and after an unsuccessful formal notice, the sale will be considered null and void. In such cases, all payments made will remain with the seller as compensation. Generally, if such a situation were to occur, the buyer would likely seek to resell the life annuitycontract to avoid being in a financially challenging situation.
- Sale in full ownership (Viager libre): The seller transfers full ownership of the property, with part of the price paid as a bouquet and the remainder in the form of annuities. These annuities are indexed and tax-free. In this case, the seller will no longer have any repair or other costs, nor any taxes.
- Sale of Naked Ownership with usufruct reserved (Viager occupied): The seller retains the usufruct of the property, typically for life. The seller can either occupy the property or rent it out and receive the rental income. The buyers will only take full possession of the property upon the death of the seller(s).
- Sale in full ownership with the right to use and inhabit (Viager occupied): The seller occupies the property but cannot rent it out in case of early departure. Generally, a complementary annuity is provided in case the property is vacated (after a three-month notice and an official departure declared before a notary).
To guarantee the seller’s purchasing power, the annuities are indexed based on the health index. It is possible to limit the indexation or set a fixed annual increase (e.g., 2% per year) – It all depends on the agreements between the parties.
In the case of a sale in full ownership, all costs of repairs and maintenance are borne by the buyer. In the case of the sale of Naked Ownership, all maintenance and repair work is the responsibility of the sellers, with only major repairs related to the roof and the structure of the building being the responsibility of the buyers (civil code art 606) – terrace – replacement of elevators * replacement of the boiler.
In the case of life annuity free, the property tax is the responsibility of the buyer. In the case of life annuity occupied, the property tax is the responsibility of the seller.
The buyer must pay the deed fees, registration fees, and notary fees. The real estate agency fees are also the responsibility of the buyer. These costs are calculated based on the value of the property pro fisco.
Selling a life annuity within the family is not recommended because there is a risk of requalification by the tax authorities upon the death of the seller. According to Article 11 of the Code of Successions:
“Moveable or immovable property that has been sold or transferred for consideration by the deceased is considered, for the purpose of collecting inheritance and death duties from the estate of the deceased, as part of their estate and received as a legacy by the acquirer or assignee if the deceased, under the terms of the agreement, retained an usufruct or stipulated an abandonment in their favor of the usufruct of another property or any other life annuity right unless it is proven that the sale or transfer does not disguise a gift in favor of the acquirer or assignee.”
When retirement age arrives, the resulting decrease in income can be significant – On average, the legal pension corresponds to a 30% reduction in income.
Many seniors want to remain active and occupy their free time – Between vacations, hobbies, outings, financial assistance for children or grandchildren, and maintenance or health issues – it becomes clear that retirement does not necessarily mean “reduced expenses.”
In the past, it was possible to offset the deficit with interest from savings that had been accumulated. However, today, with interest rates close to 0%, retirees have to dip into their savings every month to balance their budgets.
The increase in life expectancy (10 more years over the last 30 years) combined with this budget deficit means that 40% of seniors find themselves facing financial difficulties and have to make a choice.
Selling their property and entering the rental market or downsizing are options.
Staying in their own home is the desire of the vast majority of respondents.
Viager Occupé is the solution to regain purchasing power and worry less about the end of the month while retaining their accommodation.
What happens if I have to leave the property for health reasons or move?
The contract generally provides that you retain the usufruct for life – this means you can stay in your property for the rest of your life or, if you move, you can rent your property and receive the rental income.
You can also choose to transfer your usufruct to the buyer for a supplementary annuity in case of an early departure from the property.
In most cases, if you leave your property, it’s for health reasons. Will you still have the ability or strength to manage a tenant?
Consider the cost of refurbishments, potential requirements from your tenant, taxes, and charges that affect your return.
By transferring your usufruct to the buyer, you no longer have any worries; all the costs and charges are then the buyer’s responsibility.
Generally, the transfer of usufruct is made with a supplementary annuity, which is usually around 50% of a regular rent.
In a life annuity occupied, the expenses are shared between the usufructuary and the bare owner (nue-propriétaire). While this list is not exhaustive, most contracts specify the following distribution:
The usufructuary (seller) takes care of all usufruct-related repairs. Without limiting the generality of maintenance repairs, the following are usually treated as such:
- All operating expenses related to the property’s use and enjoyment.
- Repairs considered maintenance (as opposed to “major repairs” borne by the bare owner as mentioned below).
- Painting, even exterior painting.
- Floor, ceiling, stair, chimney repairs, and chimney sweeping.
- Replastering, even for thick walls.
- Maintenance, repairs, and replacement of the heating system.
The bare owner (buyer) bears the burden of major repairs as specified in Article 606 of the Civil Code, as well as those accepted today by jurisprudence.
Article 606 states: “Major repairs are those related to thick walls and vaults, the restoration of beams and entire roofs; also the repair of dikes and retaining walls in their entirety. All other repairs are considered maintenance.”
All of this can be subject to agreements between the parties.
Each party must insure their risk – Everyone must contact their insurer – theoretically, there could be two contracts, one covering the bare ownership, the other covering the usufruct.
In practice, it is often agreed to maintain the existing contract and notify the insurance company of the property’s division. The premium is then shared 50/50. The significant advantage is that if there is a claim and only one contract, there is no risk of the insurers blaming each other…
We have seen that the seller’s age is an important factor in the annuity calculation. The younger you are, the longer your life expectancy, and the potentially longer the annuity payment duration will be. As a result, the younger you are, the lower the annuity amount will be, but the buyer will have to wait longer to benefit from the acquisition.
Buyers are generally already homeowners and well-established in life, usually between 40 and 55 years old. A generational age difference is often recommended between buyer and seller.
Based on these indications, a seller in a life annuity occupied should be at least 70 years old to meet the demand under good conditions.
There are possibilities to sell when you are younger, but it often involves limiting the usufruct duration.
For life annuity free (full ownership sale), there is no minimum age, but the annuity payment duration will be limited.
The contract provides two guarantees if the buyer fails to meet their obligations.
The privilege of the seller: A mortgage registration is taken in favor of the seller to guarantee the payment of the annuities. In case of default, the seller can sell the bare ownership and get paid first before all other creditors of the buyer.
The resolutive clause (pacte commissoire exprès): This clause allows the seller to cancel the sale and reclaim full ownership of their property. The amounts already paid (bouquet and annuities) remain with the seller as compensation. In practice, it is unlikely that this will happen. In such a situation, the buyer would likely prefer to resell the life annuity contract to a reliable third party. All initial conditions must be maintained in this case.
The annuity’s duration is freely determined between the parties. We recommend a duration related to the age of the seller. At 82 years old, we would not advise spreading the annuities over 20 years but rather over 10-12 years to have relatively high annuities with a high probability of receiving them…
For people who are 70 years old, for example, we recommend the payment of annuities over 15 to 20 years, knowing that the longer the duration, the lower the annuity amount. The buyer will be interested in setting a longer duration to pay as little as possible each month. However, they should not scare off potential buyers by reducing the annuity duration too much.
It is essential to entrust the sale to a specialized company with experience and a thorough understanding of life annuity transactions.