Selling for a life annuity is the solution chosen by many seniors in order to receive a large amount of capital, as well as an indexed monthly pension and net of tax.
These are the assets of the life annuity for the seller:
Capital available immediately
A regular and guaranteed income complementary to the pension
Continue to live in your own home (occupied life annuity)
Avoid management concerns with tenants (free life annuity)
Protection against inflation through indexation
Reversibility or increase in the payment of the annuity at 100%
No, the annuity is net of tax if it is paid by an individual. The annuity is the result of a property sale that is not subject to taxation. It is therefore not considered as an income by the tax authorities.
However, if the purchaser is a legal entity, the annuity will be taxed currently at 30% of 3% of the abandoned capital. In this case, the legal entity will have to pay an annuity supplement to the seller to compensate this taxation.
The bouquet is a capital sum that the purchaser pays to the seller at the time of the authentic act. This is sort of a deposit on the sale price. Note that the larger the bouquet, the lower the annuity will be and vice versa.
It will be the heirs and beneficiaries who will continue to pay the annuity until the term provided for in the deed.
Purchasers with young children may be advised to take out life insurance, which will cover the payment of annuities in the event of death.
The contract provides for a resolutory clause or express forfeiture clause, which stipulates that in the event of non-payment of the annuity within 2 months of its due date and after formal notice has remained unfulfilled, the sale will be considered as null and void. All payments will remain acquired to the seller as compensation.
Generally, if such a case were to arise, the buyer would want to resell the life annuity contract, in order not to avoid facing a dramatic financial situation.
Life annuity in full ownership = Free life annuity
The seller transfers the full ownership of the property for the payment of a price converted partly into a “bouquet” (capital sum) and the balance in the form of annuities. These annuities are indexed and net of tax.
In this case, the seller will no longer have any repair or other expenses, nor any taxes.
Sale of the Bare Ownership with a reserve of usufruct = Occupied life annuity
The seller reserves the right to the usufruct of the property, in general during all lifetime – The latter can either occupy the property, rent it and collect the rents.
Purchasers will dispose of the property only at the death of the seller(s).
Life annuity in full ownership with the right of use and housing
The seller occupies the property but cannot rent it in case of early departure. A supplement to the annuity is usually provided in the event of release of the property (renunciation of 3 months and formalization of the departure in front of a notary)
In order to guarantee purchasing power to the seller, annuities are indexed according to the health index. Limitation of indexation can be foreseen, or a fixed annual increase can be determined (e.g. 2% per annum). It is all about conventions between parties.
In the event of sale in full ownership, all the costs of the works are incumbent on the purchaser. In case of sale in bare ownership, all maintenance and repair works are to be paid by the sellers, only the major repairs related to the roof and the structure of the building are at the expense of the purchasers (civil code art. 606), such as the terrace, the replacement of the elevators*, the replacement of the boiler.
Annuity sale within the family is not advised, since it exists a risk of requalification by the tax authorities at the time of death.
According to article 11 of the Code of Estates: " Movable or immovable property, sold or assigned in return for payment by the deceased, shall be regarded as part of his estate for the collection of inheritance and transfer rights upon death due by the head of the heirs of the deceased, as making part of the inheritance and collected as a legacy by the purchaser or the assignee, if the deceased, under the terms of the agreement, had reserved himself/herself the usufruct or had stipulated the abandonment for personal benefit either of the usufruct of another property, or of any other right to annuities, unless it is established that the sale or transfer does not disguise any gift at the benefit of the purchaser or the assignee."