A life annuity is a sum of money fixed in advance and paid periodically (monthly, quarterly, annually) to a beneficiary until his death. Indeed, the payment of the life annuity is interrupted by the death of the annuitant (the one who receives it). This annuity very often results from the abandonment of financial or real estate capital.
The life annuity may have been taken out as part of life insurance, a capitalization pension contract, or obtained through a life-building sale operation.
Regarding contracts, three types can be distinguished:
annuity contracts: this is an immediate or deferred life annuity (depending on the date of the first payment), open to all savers.
contracts with mandatory withdrawal into an annuity: with these contracts, the accumulated retirement savings are converted into an annuity when you retire. It is added to your retirement pensions. These include, for example, the Madelin contract, for self-employed workers, and the Préfon, for civil servants.
optional annuity contracts: this is a life insurance contract. The life annuity may then be stipulated as “ reversible ” for the benefit of the spouse or any other person. This means that upon your death, your pension will then be paid to him until his own death, in whole or in part.
life annuity for consideration
A life annuity is constituted for “onerous title” when the obligation contracted by the debtor has as consideration:
either the payment of a cash capital
or the alienation of property, movable or immovable.
The annuity will then be constituted for the benefit of a person who will receive it for the duration of his life.
Thus, the General Tax Code lists the different types of life annuities constituted for consideration:
annuities received in return for the sale of a building, goodwill, the bare ownership of goods, or the transfer of shares in companies belonging to the annuitant
those constituted in a division, as a balance, to compensate for the inequality of the two lots
annuities paid to an ascendant in the execution of a clause of a division of ascendant
those resulting from the conversion into a life annuity of the usufruct of the surviving spouse
and finally, the annuities paid in the execution of a clause of a gift inter and as a charge imposed on the donee.
On the other hand, some life annuities are not considered to be onerous. Here are some examples :
disability pensions resulting from insurance contracts taken out by employees to supplement their legal social protection scheme
the annuity arising from a court decision compensating a victim of an accident
that paid as a compensatory allowance when a divorce is granted.
Good to know: it is also possible to set up a life annuity for free! This is particularly the case when no consideration is provided in exchange for the promised annuity. This is the case, for example, of the life annuity paid as a gift by a parent to his child.
Real estate life annuity
The life annuity is a mode of investment. It gives the possibility of acquiring a dwelling in exchange for an annuity paid to the seller until his death.
The amount of this life annuity depends on several criteria:
the market value of the apartment or house (determined according to the characteristics of the property, the work to be planned, the neighborhood, the accessible amenities, etc.)
the age of the seller
and whether the property is occupied or not.
But how is the amount of this annuity actually calculated?
To put it simply, you have to divide the value of the property by a coefficient reflecting the life expectancy of the seller at the time of purchase. The scale of this coefficient varies according to whether or not the accommodation is occupied.
This makes it possible to obtain the annual annuity, to be reported quarterly or monthly depending on the method of payment selected.
In practice, it is the notary responsible for the real estate transaction who is responsible for calculating the amount of the life annuity.
💡 Good to know: if you buy a property in life you will generally have to pay an amount called “bouquet”. This is a sum paid in cash at the signing of the sales contract, which is generally equivalent to 20-30% of the total value of the property. You are free to discuss the amount with the seller. The bouquet is not compulsory. When it exists, it must be removed from the market value of the accommodation before calculating the annual annuity.
Taxation of life annuities
Income tax concerns part of life annuities for consideration. This part is variable according to your age at the time of the 1 st pension payment.
On the date of the 1st payment, the taxable fraction is:
Your age at the 1st paymentTaxable fraction
Under 50 70%
From 50 to 59 years old 50%
From 60 to 69 years old 40%
Over 69 30 %
You must indicate on your tax return the gross amount of life annuities received each year by the members of your tax household.
The tax authorities will then calculate their taxable fraction.
Life annuity and estate
A life annuity sale has consequences for the succession of the heirs of both parties.
Do the seller’s heirs have a right to the property?
By selling his property as a life annuity, the seller withdraws it from the heritage that he passes on to his heirs. The latter are therefore dispossessed of the property sold, which is no longer part of the estate. As a result, they no longer have any right to the accommodation, which belongs to the buyer (the annuitant) upon the death of the seller.
On the other hand, the other goods that belonged to the seller are not affected by the life annuity: they, therefore, return automatically to the heirs.
What happens if the buyer dies before the annuitant?
If the annuitant dies before the annuitant, the consequences will be heavy for the heirs.
By default, the heirs will become annuitants and will therefore have to pay the life annuity to the annuitant until his death. In the event of non-payment of the annuity, be aware that the seller may well request the cancellation of the sale and recover his property.
If they do not want to pay a life annuity, the heirs can choose to opt for one or other of these solutions:
renounce their share of inheritance
choose to resell the life annuity, which will allow them to pay the sums to be paid to the annuitant.
Once the annuitant has died, and if the heirs have wished to continue the payment of the life annuity, the latter will become owners of the accommodation which will pass into the estate