A beginner`s guide to purchasing property in France

A beginner’s guide to
purchasing property in France
slatergordon.co.uk
A beginner’s guide to purchasing property in France
“I would like to thank you
and your team for making
the whole experience
of purchasing my property
in France a pleasure
and a remarkably stress
free experience. I would
certainly use your services
again and would not hesitate
in recommending you to
friends and colleagues
in the future ”
S Kelly, Surrey
Contents
Introduction - Buying a property in France
4
Do you need a UK lawyer to help with your
purchase in France? 5
++Notaires
++UK lawyers
++Notary public
++Avocats
Purchase stages
7
PRELIMINARY CONTRACT stage
++Existing property
++New “off plan” property
++Conditions suspensives (conditions precedent)
++Dossier de diagnostics techniques
(diagnostic reports)
COMPLETION stage
++The deed of sale
++L’état civil and la procuration
How should I buy? Individual or Company?
11
++En indivision
++En tontine
++Company
++Vente en viager
++Leaseback
++ Auction - vente aux enchères
French inheritance law
14
++Art.22 of the European Union Succession
Regulation (EU) No 650/2012
++Inheritance Tax
French property Wills
16
Costs and expenses
18
Taxes
21
Our service
22
3
Introduction
Buying a property in France
With a surface of over 640,000km2 and
3427 km2 of coastline washed by three
seas, France is more than twice the size
of Great Britain, but is home to about the
same number of people. A country of
infinite variety and character, coupled with
an agreeable climate, it’s not surprising
that so many people are buying second
homes in France or even going to live
there permanently.
4
Buying a property in France doesn’t
need to be a stressful experience,
provided a purchaser understands
and accepts that the legal procedures
in France may differ from those with
which they’re familiar.
In the following pages, we’ll briefly
explain the differences and identify
the main pitfalls. This introductory
booklet is not, however, intended
to be a comprehensive guide.
Purchasers should obtain individual
advice from a specialist lawyer before
embarking upon any transaction.
A beginner’s guide to purchasing property in France
Do you need a UK lawyer
to help with your purchase
in France?
Many UK purchasers of property in France are confused or even
distrustful when only one notaire is involved in a transaction, unlike
the situation in England where the English lawyer is not permitted
to act for both vendor and purchaser.
Under French law, a transfer
deed (acte authentique) must be
prepared by a notaire and this
profession still has a monopoly
in such matters. However,
many people consider having
the additional security of their
own independent legal advisor/
lawyer as a necessity rather than
an option.
The roles of notaires and UK
lawyers vary enormously. Buyers
are often told that a notaire deals
with all the legalities in France
and there is no need to involve
another party. While legally
accurate, the problem with
this argument becomes all too
apparent for many purchasers.
Often notaires do not see the
initial contract until after it
has been signed and is binding
on both parties; it is then the
notaire’s responsibility to
enforce it.
What is a notaire?
A notaire is a government official,
responsible for receiving all the
deeds (actes) and contracts to
which parties “wish to confer a
seal of authenticity, to assure
their date, to hold them in trust
and to deliver authentic copies”.
The notaire is under the authority
of the French Minister of Justice
and is appointed by decree. The
notaire’s office (étude) depends
geographically on the area in
which they live. In principle, the
notaire represents the French
State rather than the interest of
either party in the transaction.
It is the notaire’s duty to ensure
and guarantee that the transfer
of the property is perfect and
that the conditions of the
transaction are met. They also
guarantee the morality and the
validity of contracts and are
directly responsible for the deeds
they receive and for the money
with which they are entrusted.
Despite a 44 per cent increase in
their numbers since 1980, there
are still relatively few notaires
in France numbering around
9,500 compared to the 133,300+
solicitors registered in the UK.
Notaires’ professional fees in
property transactions are fixed
by decree. Notaires are obliged
to collect all taxes imposed and
to pay them over to the relevant
authorities. They are never
involved in contentious matters,
so if a serious disagreement
arises between vendor and
purchaser they must refer the
parties to separate avocats
(litigation lawyers).
Other services include preparing
deeds relating to marriage
settlements between husband
and wife; donations (gifts), Wills,
inheritance, company formation,
commercial transactions,
property valuations, sale of
property, etc.
There is a considerable difference
between the way a lawyer would
deal with a purchase in England
and the way a notaire deals with
one in France. French buyers
would not expect the notaire to
volunteer any unsolicited advice
or to update them regularly as
the matter progresses. You may
therefore hear nothing from
the notaire from the date the
preliminary contract is given to
them until a few days before the
proposed completion. This can
be problematic because, unless
you raise the subjects, in general,
they may not automatically
explain French inheritance laws,
different methods of tenure,
complex co-ownership
regulations, etc. (though you will
be deemed to have knowledge of
them even if signed on your
behalf by virtue of a power
of attorney).
The purchaser always has the
right to select a notaire for the
transaction, but in practice if
you are buying from a French
individual or builder they will
generally instruct the notaire.
There is nothing at all to prevent
the English purchaser having a
separate notaire to look after
5
A beginner’s guide to purchasing property in France
their interests and this does not
generally result in an increase
in costs as the two notaires must
share the fee between them.
Depending on the notaires
involved, this may improve the
situation or cause delays; the use
of a suitably experienced lawyer
in this country will generally
assist the situation and may
be quicker.
UK Lawyers
In contrast, an independently
appointed, specialist UK lawyer
looks after your personal
interests, taking into account
both UK and French law. Many
differences between the two
legal systems, of which the
notaire may be understandably
unaware, may have serious
consequences for a British citizen
purchasing in France, if only the
French legal perspective is taken.
Your UK lawyer can advise and
assist in your own language,
liaising with the notaire and other
professionals in France. You may
also have the added protection
of a UK law firm’s professional
indemnity insurance.
Translations of contracts are
sometimes provided but these
are often inadequate and
sometimes misleading.
You are bound by the terms
of the French document, not
the translated version which
has no legal value whatsoever.
A detailed explanation of the
legal implications from your
6
lawyer is far more useful. Even
a professional translator cannot
(and is not employed to) identify
missing clauses which should
be added for the purchaser’s
protection or explain the legal
implications of the documents.
UK Public Notaries
The roles of French notaires
and that of UK public notaries
are very different.
A public notary is a qualified
lawyer. Most, but not all, are
also solicitors. They must be
fully insured and comply with
stringent practice rules and
rules relating to conduct
and discipline.
The practice of a public notary
has two significant differences
from that of a solicitor. First,
their duty is to the transaction
as a whole and not just to one
of the parties and he may act
for both parties to a transaction
as long as there is no conflict
between them and their duty is
to ensure that the transaction
they conclude is fair to both
sides (similar to a notaire
in this respect). Secondly,
notaries identify themselves
on documents by the use of
their individual seal which
establishes the authenticity of a
document. A notary’s seal will
be registered with the Foreign
and Commonwealth Office and
possibly with foreign embassies
and consulates. The seal can
be further authenticated by a
process called legalisation.
In England and Wales, notaries’
main duties involve verifying
facts, documents and information
for use overseas.
In French property transactions
or estate matters, they are often
required to attest and notarise
the signature and execution
of a procuration (power of
attorney) which will then require
legalisation by the Foreign and
Commonwealth office.
Avocats
This is a French lawyer who
specialises in more contentious
issues and also general legal
matters outside the remit of a
notaire. Their assistance could
be required should you have
problems where matters
become litigious.
Purchase stages
As in the UK, the purchase of property in France consists of two stages;
the preliminary contract, followed by signature of the acte authentique
de vente or deed of sale. Here, however, the similarity ends.
In France there is no single form
of preliminary contract used
for all sales and contracts may
vary greatly in content and
appearance.
Before signing any paperwork,
the purchaser should ensure that
they understand the document
offered to them and that it
contains all the appropriate
clauses for their protection as
it is signed at a much earlier
stage in the transaction.
We can review the French
contract, explain its terms to
you and negotiate with the
seller’s lawyer to make any
necessary amendments or
additions for your protection.
Preliminary
contract stage
• Existing properties
Contracts for re-sales/existing
properties generally fall into
three main types: the promesse
de vente, the promesse d’achat
and the compromis de vente (or
vente sous conditions suspensives).
The promesse de vente and the
promesse d’achat are similar
options; the vendor or the
purchaser respectively enters
into a commitment to sell or
to buy, but the other party
is not bound. In the case of a
promesse de vente, therefore,
the purchaser may be able to
withdraw from the transaction
before completion by simply
forfeiting their deposit paid on
signing a contract.
A compromis de vente on the
other hand does bind both
parties. There is no universal
rule about what happens to the
deposit (usually ten per cent or
five per cent of the sale price) if
a transaction does not proceed;
this is governed by the contract.
Failure to proceed with the
purchase results in loss of the
deposit, a claim for damages
greater than the deposit or even
a court action to force the sale.
All preliminary contracts should
contain conditions suspensives
(conditions precedent) for the
protection of both parties.
• New build “off plan” property
Contracts for the sale of new
build “off plan” properties
are subject to strict consumer
protection laws.
The contracts in use may be
called contrats de réservation
(reservation contracts) or vente
en l’état futur d’achèvement
(VEFA - sale in future state of
completion). The reservation
contract provides for payment
of a deposit (up to five per cent),
subsequent stage payments
and conditions suspensives.
The deed of sale is signed
before the construction work
is complete, usually once the
foundations have been laid.
The purchaser acquires
ownership of the land and
whatever has been built upon it at
the time the deed of sale is signed
and they automatically acquire
ownership of the rest of the
building as the work progresses.
Provision is made for deposits
and stage payments to be held
in special, designated bank
accounts for the protection of
the purchaser.
Such contracts and deeds
usually contain stipulations
regarding time delays in the
building programme. Where
these are the result of bankruptcy
of a contractor or of force
majeure, for example, the
purchaser would not be entitled
to compensation even if handover
of the property is delayed by
many months.
Pressure to sign a contract,
e.g. from a developer’s sales
office or estate agent should
be resisted. Most reputable
builders and estate agents are
perfectly prepared to wait
while potential purchasers
seek independent advice on
the contents of a contract.
• Conditions suspensives
Whatever their form, all
preliminary contracts should
contain conditions suspensives
(i.e. conditions precedent or
“get out” clauses).
7
8
These are special terms or
conditions which, if not satisfied,
should render the contract
null and void and entitle the
purchaser to withdraw and
to recover any deposit paid,
assuming they have fulfilled their
contractual obligations. The
contract should, for example,
be subject to there being no
adverse planning restrictions,
no third party rights of way or
easements which might affect
the purchaser’s enjoyment of the
property or decrease its value.
There should also be no existing
mortgages (hypothèques) or
charges affecting the property
that would not be cleared
at completion and no claims
upon the property by the local
authority or the French State.
transaction if for any reason they
later find themselves unable to
raise the finance to proceed. It is
essential to follow the terms of
this condition to the letter.
French law requires every
preliminary contract to be
conditional upon the purchaser
being granted a loan to
purchase the property. Unless
the purchaser expressly states
in the contract, in their own
handwriting, that they do not
require a loan and understand
the consequences of this.
• Dossier de diagnostics
techniques
The mortgage condition will
normally include time limits
within which the purchaser
must apply for and receive their
mortgage offer. Should they fail
to respect the time limits, the
loan condition will be deemed
to be satisfied and the purchaser
could not subsequently rely
upon it to withdraw from the
These tests are increasing
regularly in number and are
all provided at the vendor’s
expense. Those required will
vary depending on the region
and age of the property. The
notaire should ensure that any
certificates required are obtained
and attached to the contract
and deed of sale in due course.
Purchasers need to ensure
that all appropriate conditions
suspensives to meet their needs
are included in the contract
before they sign it. It is customary
to sign the preliminary contract
and pay the deposit before any
enquiries are raised and any
mortgage advance agreed.
This is in sharp contrast to the
procedure in England and Wales,
where the preliminary contract
is only signed after the result of
a local authority search has been
received and once the purchaser
has obtained a mortgage offer.
Annexed to the contract will
be a dossier de diagnostics
techniques. This is the collective
name for the set of obligatory
inspection reports which must
be provided to protect both the
vendor and purchaser.
The price stipulated in the
contract normally takes account
of any financial consequences
arising from the condition of
the property e.g. with regard
to termites, asbestos, lead
poisoning, energy performance,
gas/electricity installation
and major natural and
technological risks.
Completion Stage
The deed of sale
Whether the transaction
concerns an existing property or
part of a new development, the
final / completion stage is the
signature of the acte authentique
de vente (deed of sale) which is
drawn up by a notaire.
Whether the preliminary
contract was drawn up by the
estate agent or by the notaire, it is
the notaire’s duty to carry out the
various basic enquiries with the
local authorities and ensure that
the conditions precedent have
been satisfied and diagnostics
obtained. Once satisfied that
there is nothing of significance
affecting the property they call
upon the parties to attend at their
office to sign the deed of sale.
French law requires that a deed,
to be authentic, must be executed
in the presence of a notaire and
in France. In principle, it is the
purchaser who has the right to
choose the notaire who deals
with the transaction.
A beginner’s guide to purchasing property in France
In the case of new developments
a single notaire appointed by the
developer usually deals with all
sales. A non-French purchaser
may find that the estate agent
or even the vendor will nominate
a notaire. If so, the purchaser
may still appoint a notaire of
their choice at no additional
cost; the two notaires sharing
the “notaire’s fees”. In practice,
for purchases of older property,
many people who appoint
independent specialist legal
advisors with expertise in Anglo/
French property matters may
not feel the need to involve
a second notaire.
A period of two-to-three months
generally elapses between
signature of the preliminary
contract and signature of the
deed of sale, for existing
property sales. For off plan
purchases, it could be 12 months.
In the case of properties forming
part of a multiple development,
the notaire will also draw up
règlements de co-propriété
(co-ownership rules) and
provide a draft copy along with
with the draft deed of sale.
These are often lengthy and
complicated documents and
the deed of sale will contain a
declaration that the buyer has
a copy and understands
its provisions.
as to progress, nor do they
automatically advise upon or
explain the contents of the
preliminary contract, deed of
sale or co-ownership regulations.
Another reason why it is
considered important for buyers
to take independent legal advice
from suitably experienced
lawyers before any such
document is signed if they
wish to be fully informed.
A translation provided by the
estate agent has no legal value.
L’état civil
The French notaire will require
evidence of the purchaser’s
civil and marital status (état
civil). You may be asked for
details of your marital regime
and carnet or livret de famille.
This is a (French) family history
booklet, containing details of
births, marriages, separation or
divorce and deaths within the
family but an equivalent does
not exist in the UK. To supply
the relevant information, it will
be necessary for non-French
buyers to produce copies of
birth certificates, marriage
certificates, divorce decree
(if appropriate) and passports.
Sometimes it is essential to
supply original duplicates
issued by the Registrar within
the preceding three months.
La procuration
Although a deed of sale must
be signed in the presence of a
notaire in France, it is possible
to achieve this by means of a
power of attorney (procuration)
signed in the UK in the presence
of a notary public (notarised)
and legalised by the Foreign and
Commonwealth Office.
If inconvenient or impossible
for them to travel to France
purely for the signature of the
deed at the required time, this
is a popular choice. A power
of attorney appoints a third
party (usually a member of the
notaire’s staff) to sign the deed
on behalf of the purchaser in
the notaire’s office at a time
convenient to all parties.
It is not general practice for
most French notaires to keep
the parties constantly informed
9
A beginner’s guide to purchasing property in France
10
How should I buy?
Individual or Company?
Purchasers of property in France are free to decide how to structure
their ownership e.g. whether the purchase should be in the name of
an individual, a number of individuals or even a French company e.g.
a société civile immobilière (SCI). Traditionally, French inheritance
laws (see below) have often influenced a buyer’s decision.
The most common ways
to acquire property in
France are:
•En indivision - similar to a UK
tenancy in common
Indivision is the most common
method of property tenure in
France and how most notaires
will automatically draft a
deed of sale unless otherwise
instructed. The co-owners
(indivisaires) own the property
jointly but on the death
of one co-owner it passes
to their heirs in accordance
with the French succession
rules of the réserve and/or
the provisions of any legal
Will that may exist.
Consequently, the surviving
indivisaire may ultimately
own the property with the
deceased’s children,
surviving parents or other
heirs of a more distant
degree e.g. friends of the
deceased. If one indivisaire
wishes to dispose of the
property and another does
not, the party wishing to
sell can take legal steps
to try to force the sale of
the property.
There are certain measures
which may be taken to improve
such situations e.g. entering
into a convention d’indivision
(but this can only be valid for
five years before it must be
renewed) or leaving the
surviving owner the usufruit
or life interest in the property.
•En tontine - similar to UK
joint tenancy
This is a method whereby two
or more people (tontiniers)
buy a property together and
on the death of one owner, the
deceased’s share will pass to
the survivor(s). This process
will continue until there is only
one surviving owner. While
sometimes appropriate, this
method is often regarded as
unsatisfactory and restrictive;
no changes can be made in
the arrangements without the
consent of everyone involved,
e.g. a sale cannot be forced.
The tontine arrangement can
only be included in the deed
of sale prior to signature.
It may be cancelled if all the
tontiniers are in agreement
but could not be reinstated
at a later date.
Whilst there may be inheritance
tax (IHT) consequences for
certain classes of heirs, for
married couples or those with a
(French or UK) civil partnership
it would allow the property to
pass to the survivor absolutely
without liability to French IHT.
• Company purchase
Société Civile Immobilière (SCI)
The use of such a company has long had considerable advantages in certain
circumstances e.g.
• For tax purposes in France:
it is transparent so any capital
gain on sale is payable by the
members of the SCI who are
each liable to a proportion
of the tax.
• The SCI is a separate legal
entity from its members and
the property is owned by the
company, not the members
personally. Only an internal
transfer of shares would take
place with the consequent
taxes and fees falling due on
the departure of a member
from the group or the arrival
of a new member without any
11
change in the title to
the property.
• The main reason some UK
resident purchasers have
opted for such a structure in
the past is so that the movable
property shares (parts)
could devolve as part of their
English estate rather than
under French law. (French
IHT remains payable).
English limited company
This is possible but costs
including potentially punitive
capital gains tax (plus value)
on a re-sale, should be carefully
considered before acquiring
property in France in this way.
A three per cent annual tax
may be payable in France on
company-owned realty; where
the appropriate steps are taken
it may be possible to avoid this.
• Vente en viager
A less well-known form of
purchase, this is similar to a
reversionary annuity. A typical
scenario could involve an elderly
person, with no children upon
whom to rely for support, selling
his property on an instalment
basis. Possession may or may
not be given to the purchaser
on the date of completion. The
seller could remain in residence.
On the date the deed of sale is
signed, the purchaser pays a
relatively small proportion of the
purchase price. The deed does
not define a fixed, final purchase
12
price but provides for a regular
(e.g. monthly or quarterly)
sum to be paid by the purchaser
to the vendor throughout his
lifetime. This provides the
vendor with an income for life.
Whether or not the purchaser
obtains a bargain depends upon
how long the vendor lives!
• Leaseback
The concept of sale and leaseback
was launched by the French
government in the 80s to boost
tourism and create employment
in ski and seaside resorts. The
purchaser is entitled to buy a
freehold apartment usually at
a discounted price (in principle a
French VAT refund) on condition
that they immediately grant
a (commercial) lease of the
apartment back to the developer
or leaseback company for a
minimum of nine to 11 years.
The lease can be renewed to
run for a maximum of 20 years.
To qualify as a leaseback, the
properties must be furnished
and meet a minimum standard
and the lessee must offer certain
“parahotel” services. These
are usually acquired as off plan
(VEFA) purchases but some do
change hands as a re-sale.
The lessee/management
company also undertakes to
pay a rent to the purchaser, find
tenants and takes responsibility
for certain aspects which would
otherwise fall on the owner
e.g. they may pay certain
taxes and charges. These can
be offered with and without
personal use by the owner for
a number of specified weeks
each year if desired.
Though Taxe sur la Valeur
Ajoutée (TVA/French VAT)
is currently 20 per cent and
the refund incentive attracts
many the actual sum refunded
is closer to 16.5 per cent.
If sold within 20 years the
refunded TVA must be repaid
pro rata (unless the commercial
lease is continued by the new
owner and the tax authorities
permit this).
While attractive to many
buyers, leaseback schemes can
be complicated and can present
certain risks to the unaware.
Purchasers are advised to
obtain detailed and specific
legal advice to ensure that they
have a good understanding of
the commercial lease, its legal
and tax consequences.
A number of leaseback
companies and/or developments
have experienced difficulties
in recent times, resulting in
problems for owners/lessors.
These include non-payment
or reduction of rental income,
changes in lessee, etc.,
so it is of paramount importance
that buyers enter into an
agreement in full knowledge
of the risks and consequences
it may have.
A beginner’s guide to purchasing property in France
• Auction - vente aux enchères
An auction sale may be the result
of a bankruptcy, repossession or
an attempt to settle the estate
of a deceased owner. Very often
property can be obtained at a
price considerably lower than its
market value. As the procedures
for such a purchase differ greatly
from other methods and from
UK auctions, it is essential that
the purchaser is fully aware of
these as well as all the costs and
charges entailed.
13
A beginner’s guide to purchasing property in France
French inheritance law
French laws of succession provide that where a person dies leaving
surviving descendants, they may not freely dispose of their estate in
France. Purchasers should therefore seek legal advice before deciding
how to proceed with the purchase, as the best method will depend
entirely upon the personal and family circumstances of the individual
and on provisions for their French real estate in a Will.
Under French legislation, an
individual’s assets on death
consist of the reserved portion
(réserve légale) and a disposable
portion (quotité disponible).
French law provides that certain
heirs (réservataires) have
automatic rights of inheritance.
Where children survive a parent,
the French rules of réserve state
that the reserved portion must
go to the children, regardless of
the wishes of the deceased.
On the death of the parent, the
children automatically receive
a share in his/her estate in the
proportions indicated in the table
overleaf, leaving a percentage
which is freely disposable in
accordance with the wishes of
the deceased. If no alternative
wish is expressed regarding
the disposable portion in the
deceased’s Will the entire estate
would normally be divided
between the children and spouse.
Even where a husband and
wife buy French property
jointly, surviving children may
be entitled to share in the estate
14
on the death of one of the
spouses under the French
rules of the réserve unless
specific steps have been
taken. These legal provisions
become particularly crucial
if the purchase is a joint
venture between, say, two
or more families or where
there are children from
previous marriages.
France which could transfer
under the lex situs (law of the
country where it is located).
EU citizens may be able to choose
the law of their nationality as the
law to govern their succession as
a whole as a result of Art.22 of
the European Union Succession
Regulation (EU) No 650/2012
which came into effect on 17
August 2015.
Despite major reforms
introduced in August 2007,
the restrictions on who can
inherit under French law
are largely unaffected and
children still inherit in priority
to a spouse.
However, the UK, together with
Denmark and Ireland, has opted
out of this regulation and it is not
entirely clear whether or not,
from 17 August 2015, Art. 22 will
fully apply to UK residents.
There may be steps that can
be taken to improve a spouse’s
position, including opting for
the law of your nationality,
where possible.
Art.22 of the European Union
Succession Regulation (EU)
No 650/2012
French inheritance laws apply to
a French resident’s entire estate
except for real estate outside
Expert opinions have been
divided as to whether the
countries which have opted out
(and therefore aren’t bound by
the Succession Regulation (SR)
or subject to its application),
will nevertheless fall within its
definition of a ‘member state’,
permitting (as a matter of
European policy) the succession
law of those countries to be
recognised and enforced
throughout the EU. It may remain
open to interpretation for now,
Réservataire
Réserve (minimum)
Quotité Disponible
(Disposable Portion)
1 Child
1/2
1/2
2 Children
2/3 Equally
between them
1/3
3+ Children
3/4 Equally
between them
1/4
with any uncertainty only being
resolved in due course by decision
of the EUCJ (European Courts
of Justice).
For those who do wish to have
the law of England and Wales
apply to their estate, their
French property Wills can
make provision to cover both
possibilities, i.e. where it is
deemed to apply at the time of
their death and, alternatively,
where it is not. It would be
advisable for those interested,
to take appropriate advice
from their UK Wills advisors
regarding any possible
wider-ranging consequences
(e.g. on their worldwide estate)
before they do so.
Unlike in the UK, where the
entire estate is taxed, IHT in
France is paid by each individual
beneficiary and the tax-free
allowances, taxable inheritance
and tax rate applicable vary
depending on the relationship
of the beneficiary to the
deceased. Spouses and
(French and UK) civil partners
now benefit from an exemption
from French IHT; however,
at the other end of the scale,
unrelated heirs pay tax at the
punitive rate of 60 per cent.
For those domiciled in the UK,
their French property will be
included in their UK probate
declaration also. A credit should
be given for French IHT paid.
Inheritance tax droits de succession
While these changes may
affect the devolution of an
estate, they will not remove
any problems relating to French
inheritance tax (IHT); this will
still be payable in France by the
individual heirs, no matter
which national law is applied.
15
French property Wills
Changes to French law regarding trusts, their taxation and reporting
obligations, could have serious consequences for UK owners of French
property whether the property is expressly held in a trust or simply
dealt with by their UK Will or codicil.
16
Even where there has been
no express intention to create
a trust or no on-going trust,
owing to the very widely-drawn
French definition of a trust for
the purposes of the new French
rules, the risk now is that trusts
arising on death under a Will or
intestacy will be within the scope
of these. Simply by virtue of the
quirk of English law whereby an
estate is vested on death in the
executors whilst they administer
the estate, rather than directly
in the beneficiaries, this could be
interpreted as creating a “bare
trust” under the new definition
and the taxation and reporting
obligations could apply.
There are two principal types
of French Will to consider:
Consequently, in order to avoid
any potential problems, you
should consider making a French
form of Will which relates solely
to your immovable property/real
estate in France.
The Testament Olographe
(holographic Will) is probably
the most common form of
Will in France and, amongst
other formalities, must be
entirely handwritten.
There is no legal requirement
to register a holographic
Will in France but a French
language version of the
Will can be registered by
a notaire in France at the
Central Wills Registry
(Fichier Central des
Dispositions de Dernières
Volontés).
A Testament Authentique,
a much more formal format,
must be drawn up by a French
notaire and witnessed by
two witnesses in France or
by two notaires. These must
be registered at the central
registry in France and are
considerably more expensive
so generally less popular
in France.
It is essential that you inform
your UK Wills solicitors of the
existence of any foreign Will
(in addition to your UK Will)
and keep them up-to-date
with any proposed changes in
relation to these.
A beginner’s guide to purchasing property in France
17
A beginner’s guide to purchasing property in France
Taxes
Annual property taxes
The two principal local taxes
payable in France are taxe
foncière and taxe d’habitation.
Taxe fonciére
This tax is charged to the person
who owned the property on the
first of January in any given year,
though billed towards the end
of the year. If the property
changes hands in the course of
the year it should be paid by both
owners on a pro rata basis.
Taxe d’habitation
This tax is payable in full by
the occupier of the property in
France at 1 January. Also payable
annually towards the end of the
year, there is no apportionment
of the tax between seller and
buyer if the property is sold.
Redevance audiovisuelle
(television tax)
The redevance is basically a TV
licence fee payable by every
household with one or more
television sets. It also applies to
second homes, holiday homes
and TVs without aerials used only
as a device for viewing videos and
DVDs. Notification should be
made to the Mairie (Town Hall)
when the TV is bought. New or
used TVs acquired from a retailer
will be declared by the shop.
There may also be other local
taxes due e.g. for refuse removal.
18
Income tax - France and
the UK
If your property is let you may be
liable to pay income tax in the UK
and France (impôt sur le revenu).
The French tax year follows the
calendar year, running from
1 January to 31 December. The
corrected déclaration de revenus
is due annually on 31 May for the
previous calendar year; this is
also the deadline date for new
arrivals in France to complete
and submit a declaration for the
first time. If completed online,
the deadline is extended into
June (dates vary depending on
the location in France).
Income generated on a French
property must also be declared
to the HM Revenue and Customs
(HMRC) in the UK and an
allowance is granted for any
income tax paid on this in France.
in France (i.e. not purely financial
investments) and the onus is on
them to obtain and submit their
declaration by the due date.
For those relocating, there is a
partial exemption from French
wealth tax for most people for
five years after moving to France.
The exemption only covers assets
outside France, however.
There is also a small reduction
for those with assets just over
the threshold (e.g. €1.3-1.4M)
so it’s worth taking appropriate
tax advice regarding wealth tax
and how to legitimately minimise
one’s liability where appropriate.
The deadlines for filing wealth tax
returns differ for residents and
non-residents.
French wealth tax is payable on
net assets above €1,310,000
owned at 1 January but of that
sum only the first €800,000
is wealth tax-free.
Bear in mind that trust assets are
now included and where Société
Civile Immobilière (SCIs) are
concerned, the declaration should
be based on the current value of the
underlying property held by the
company and not the basic value
of the shares. Loans are also
liable to French wealth tax.
French residents must include all
world-wide assets. Residency is
defined by French law and is not
simply a matter of being present
for 183 days.
Since 2013, there has been a
wealth tax cap in operation and
the total taxes should not exceed
75 per cent of income but the
calculation is complex.
Wealth tax
Non-residents with property in
France are only liable for wealth
tax on assets physically situated
Taxable Assets
Euros/€
Tax
rate
%
< 800,000
0
800,000- 1,310,000 0.50
1,310,001 - 2,570,000
0.70
2,570,001 - 5,000,000
1.00
5,000,000 - 10,000,000
1.25
> 10,000,000
1.50
The penalties for underpayment
or non-declaration could include
payment of the additional wealth
tax correctly due plus interest
and penalties (not only ten per
cent p.a. but possible additional
uplifts of 40 per cent for those
deemed to have acted in bad faith
or 80 per cent for those acting
fraudulently and deliberately
hiding assets).
TVA - French VAT
Penalties
While it may appear that there
is a voluntary element in this, it
is worth bearing in mind that the
tax authorities have sight of all
property transactions and will
be aware of the price paid for
a property. Where they deem
that an owner is liable to pay
wealth tax, they are entitled to
collect arrears.
If you fail to submit (or to
correctly complete) a wealth
tax declaration, you could
find the French tax authorities
knocking on your door. They
carry out regular controls
to determine if wealth tax
declarations have been correctly
submitted and their interest can
be triggered by certain events,
e.g. the sale or inheritance of
a high-value property.
If challenged, it is unlikely that
earlier years would not also be
scrutinised and they are able to
go back up to ten years.
French sales tax of 20 per cent
is generally applicable to most
goods and services.
Capital Gains Tax (CGT)
This is payable on the sale of land
or buildings and is called impôt
sur les plus values immobilières.
There are certain exemptions:
• The sale of a principal
residence/family home where
you have been habitually
resident up to the time of
the sale;
• The sale of a property owned
as a second home for 22 years
or more.
Relief now applies at a rate of
five per cent between six and
21 years of ownership and four
per cent in respect of the 22nd
year, thereby cancelling the
taxable gain after a total of 22
years of ownership. This relief
applies to the main CGT rates`
of 19 per cent or 33.33 per cent.
Where the capital gain exceeds
€50,000, additional tax
is payable.
It is also payable on the sale
of shares and certain other
personal property.
From
€
To
€
Tax rate
%
50,001
100,000
2
100,001
150,000
3
150,001
200,000
4
200,001
250,000
5
250,001
6
Social charges Prélèvements Sociaux
For some time non-residents
have been liable to pay
Prélèvements Sociaux on a
property sale at the standard
rate of 15.5 per cent. This
raised the tax payable by an EU
resident, not resident in France,
from 19 per cent to 34.5 per cent
and for a non-EU non-resident
from 33.33 per cent to
48.83 per cent.
The European Court of Justice
(ECJ) in Luxembourg has now
published a decision of principle
in favour of the tax payer that
will deprive France from levying
social charges on real estate
income (rental or capital gains)
from a person in a country other
19
than the member state to whose
social security scheme the
person belongs.
This decision could therefore
give rise to a wave of refund
applications from thousands
of non-resident tax-payers
who are subject to the social
security scheme of another EU
country but own real estate in
France, and who have already
paid the French social charges.
Time limits for a tax refund
application do apply. For CGT
this should be within two years
of the tax payment made
at completion.
UK CGT
For UK residents, the sale and
gain must be declared to the UK
Revenue also and is potentially
taxable in the UK.
An allowance should be given
for the basic CGT paid in France.
The social charges were excluded
from the charges for which
HMRC allowed credit against
UK CGT so a refund should not
impact on the UK CGT paid.
20
Inheritance and gift tax
Spouses and French and UK
civil partners now benefit from
inheritance tax exemption in
France but not from gift tax.
Tax-free allowances and
inheritance/gift tax rates vary
depending on the relationship
between the beneficiary and the
testator/donor.
A child benefits from the most
generous tax-free allowance
of €100,000 (reduced from
€159,325 in 2012) on any
inheritance or gift from a parent.
Amounts in excess of that are
taxed on a sliding scale at rates
of five per cent to 40 per cent.
Non-relatives suffer the most
punitive rate of 60 per cent
and receive the lowest tax-free
allowance - only €1,594.
A beginner’s guide to purchasing property in France
Costs and expenses
Notaire’s fees
Agency commission
Other professional assistance
In most parts of France, it is
usually the purchaser who
is solely responsible for the
legal costs and expenses
incurred in relation to the
transfer of property (unless
otherwise expressly agreed
with the vendor).
Since 1988, French estate
agents have been permitted
to set their own levels of
commission. This commission
may be payable by the vendor
or the purchaser as indicated
in the contract so always
establish if the purchase
price is inclusive or exclusive
of these fees. If included,
it is possible to amend the
contract to list the commission
separately to ensure that
the purchaser does not have
to pay purchase tax (stamp
duty) on the amount of the
commission.
Many different fields of
professionals may be required
in a property transaction
e.g. surveyors, banks, financial
advisors. At Slater and Gordon,
we have established a vast
network of contacts over many
years, so may be able to help
you in locating a suitable
professional to assist you.
Although these are known as frais
de notaire (or notaire’s fees),
they also include property taxes
and stamp duties. For an average
purchase of existing property,
these could be in the region of
between six per cent and eight
per cent. An off plan purchase
and/or new property fees appear
to be lower around three per cent
but the buyer will also be paying
VAT at the rate of 20 per cent.
Conversion table
ACRES
HECTARES
METRES
2.47 acres
1 hectare (ha)
10,000.00 m2
0.247 acres
1 are (a)
100.00 m2
0.00247 acres
1 centiare (ca)
1.0 m2
YARDS
1.00 acre
4.046.9 m2
24,840 sq yds
0.50 acre
2.023.5 m2
22,420 sq yds
0.25 acre
1.011.7 m2
21,210 sq yds
0.8361 m2
1 centiare (ca)
1 m2
21
A beginner’s guide to purchasing property in France
Our service
At Slater and Gordon we can
advise upon all aspects of the
transaction from preliminary
contract through to completion.
We can help the potential
buyer to avoid the problems
which can arise from
unsatisfactory contract
conditions or the unforeseen
consequences of French
inheritance law. We liaise with
the chosen Notaire in France
at every stage of the transaction
and aim to ensure that our client
does not sign any document
without fully understanding
its contents.
Our services are not limited to
dealing solely with the purchase
22
of property in France. Many
ancillary matters may be dealt
with as required, including
property sales, transfers on
divorce, estate administration,
French property Wills, assisting
with setting up French property
owning companies, French tax
and inheritance planning.
Whether you are a private
individual buyer or a property
developer, we can take the
worry out of the transaction.
The information contained in
this booklet is believed to be
correct at the time of printing.
The information provided is a
summary of the main provisions
of the law concerning the
purchase of property in France,
we cannot be held responsible for
any errors or omissions. Readers
are therefore advised to seek
individual advice.
For further information on our
services please contact us at the
address below:
Slater and Gordon
58 Mosley Street
Manchester
M2 3HZ
T 0800 916 908
F 0161 383 3636
E [email protected]
Wslatergordon.co.uk
Primary contacts
Lindsay Kinnealy
Principal Lawyer, International Property
Telephone: 0800 916 9083
Email: [email protected]
Susana Lajusticia
Senior Associate, International Property
Telephone: 0800 916 9083
Email: [email protected]
Slater and Gordon (UK) LLP is authorised and
regulated by the Solicitors Regulation Authority.
Slater and Gordon have
offices nationwide. If you
think we could help, visit
slatergordon.co.uk