Selling property in Life annuity (Viager) to top up your pension
To increase your income and top up your pension, you can sell your real estate (house, apartment or other) in exchange for the purchaser paying you a life annuity.
What's life annuity?
The life annuity sale consists of the sale of a real estate by an owner (the creditor ) to a purchaser (called a debtor ) who will pay the price in the form of an annuity. This annuity is called "life annuity" because it will be extinguished on the day of the death of the annuitant. It is possible and even very usual, for the seller to reserve the right to live in his home until his/her death. This is known as an occupied life annuity. In case of a sale by a couple, it is possible to arrange for the annuity to revert to the survivor.
In a way, the seller gives a loan to the buyer, either for part of the price if the buyer pays a cash sum known as the "initial settlement" or for the entire price where there is no initial settlement. The notaire also takes out a sort of mortgage known as a "seller's privilege" over the property sold. This is to enable the seller to reclaim the property if the buyer fails to pay the annuity. The buyer (the person paying the annuity) will therefore pay off the debt to the seller (the person receiving the annuity) in monthly, quarterly or other instalments the number of which is not known beforehand. The buyer pays the seller the annuity until he dies.
Seen in this way, selling for an annuity may be a gamble for the seller or the buyer.
Everything depends on how long the seller survives. No-one can know how long the seller is going to live, so everybody is taking a risk: the seller if he/she dies soon and fails to make the best of the annuity, and the buyer who may find him/herself paying out the annuity longer than expected if the seller proves exceptionally long-lived. This risk, which lawyers call "hazard", is inevitable in this type of contract. Judges cancel annuity sales where there is no hazard. For example : if the seller is ill on the day of the sale and soon dies of the same illness (Within 20 days of the signing of the act).
Any heirs the seller may have cannot inherit the property as it has been sold. If you have children, you can explain this to them if you consider this useful. Sometimes families react badly to this type of decision, which is usually motivated by a desire to ward off poverty.
Purchasing in life annuity: calculating the number of payments
Although the number of payments cannot be known in advance, the sums to be paid during the first year are listed in the notarised instrument.
These sums are calculated to reflect
- the value of the property sold,
- whether the property is vacant or occupied,
- the value of the initial settlement
- the age of the seller or sellers.
Thereafter, the annuity is revised each year, most commonly depending on variations in the construction cost index.
Selling in life annuity: taxation of pension received
Other indices may be used subject to certain conditions. Although the annuity the seller receives each year is subject to income tax , the entire sum is not taxed. The taxable part of a life annuity depends on the age of the seller on the day the notarised instrument is signed.
The older a seller is, the less the annuity is taxed.
- if the seller is aged less than 50 on the day of the sale, 70% of the annuity is taxable;
- if the seller is aged between 50 and 59, 50% of the annuity is taxable; between 60 and 69, 40% of the annuity is taxable;
- if the seller is aged 70 or more, 30% of the annuity is taxable.
Capital gains tax, tax system and selling in life annuity
Where capital gains tax is concerned, the system is the same as for an ordinary sale. If you are selling your main residence, you will not have to pay any tax.
As soon as the deed of sale has been signed at the notaire's office, the property is no longer considered as belonging to the seller's estate and the seller is no longer totally liable for it. The notarised instrument stipulates who has to pay for major and minor repairs and who pays the property tax and local residency tax.
CERTIVIA: a management fund dedicated to life annuities
Caisse des Dépôts launched September 9, 2014 CERTIVIA the funds dedicated to the acquisition and management of real estate in life, in association with the High Council for the French Notaries.