Are you looking to buy or sell a property? Have you considered a viager? How does a viager work? What are the advantages? What is the tax treatment of a life annuity? Here are some explanations.
What is a viager?
In a life annuity, the purchaser, known as the debirentier, buys a home without having to pay the full sale price on the day of purchase. The purchaser must pay a portion of the value of the property at the time of notarization, and then a periodic annuity to the seller until his or her death.
For the seller, known as the “crédirentier”, a life annuity means receiving a monthly income until death, in return for the sale of the property.
There are two types of viager:
- Viager libre: the debirentier is free to occupy or rent the property as soon as the sale is signed.
- Occupied life annuity: the creditor transfers the property to the purchaser but retains the right to use and live in it. He/she can therefore continue to occupy the property until his/her death.
Good to know: A life annuity sale involves two contracts in one: a property sale contract and a life annuity contract.
Payment of the life annuity purchase price
The price is generally made up of a bouquet and an annuity. The bouquet is the part of the price paid in cash when the sales contract is signed and is not obligatory. It is, however, recommended. In practice, it represents between 10% and 30% of the economic value.
The annuity corresponds to the real value of the property. It can be monthly, quarterly, or annual, and payable in advance or in arrears. Its amount is estimated since several criteria, including:
- the age and life expectancy of the annuitant,
- the value of the property
- the rents that could be received if the property were rented out.
The notary calculates the amount of the annuity because of scales. These scales can be obtained from a notary or an insurance company.
What are the advantages of life annuities?
For the seller :
The seller of a life annuity receives an annuity for life from the date of signature of the deed of sale.
Life annuities are also tax advantaged. Life annuities are subject to income tax on a fraction of their amount, ranging from 30% to 70% and decreasing with the age of the annuitant.
The bouquet, on the other hand, is tax-free. Finally, the vendor is no longer liable for property tax, or any works voted by the building’s syndic, even if he or she continues to occupy the property. On the other hand, if he or she occupies the property, the seller continues to pay the council tax.
For the purchaser :
The advantage of a life annuity is that it can be paid in instalments, like a loan. As life annuities are subject to the contingency of the seller’s date of death, there is no way of predicting a good financial deal!