You have probably already heard of life annuity sales. Offers to sell properties through a life annuity are increasingly popular and are considered a prudent investment.
But what is a life annuity sale?
What is the principle?
Put simply, it is a sale similar to an ordinary sale: a seller sells their property to a buyer. However, instead of paying the full price in one go, the buyer (known as the annuity debtor in a life annuity sale) will pay it in several instalments until the seller (known as the annuity creditor) dies.
The seller transfers ownership of the property in return for the payment of a price converted into an annuity. The entire sale price or only part of it may be converted into an annuity. In the latter case, the other portion (known as the “bouquet”) will be paid upfront by the annuity debtor.
How much is the annuity?
There is no legislation setting the amount of the annuity. However, it is important to ensure that the amount is acceptable to both parties: it must not resemble a disguised gift…
This annuity is payable until the seller dies, although a term may be set by mutual agreement.
The amount is calculated on the basis of various factors: the seller’s age and sex, the number of sellers, the property’s value in a conventional sale, and whether full ownership or bare ownership is being purchased.
Win-win
Firstly, this type of sale provides security for the seller because, if the buyer becomes insolvent, the sale can still be cancelled while the seller retains the annuity payments already made.
Furthermore, the annuity creditor will personally benefit from their capital.
The buyer also benefits, as they will pay less than they would have if they had taken out a mortgage.
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