a beginner`s guide to purchasing property in france

A BEGINNER’S
GUIDE TO
PURCHASING
PROPERTY IN FRANCE
www.pannone.com
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
CONTENT
Introduction - buying a property in France...................................................................................................................................04
Stages of a purchase.......................................................................................................................................................................04
Preliminary contracts for existing properties...............................................................................................................................04
Contracts for new properties.........................................................................................................................................................05
Conditions suspensives (conditions precedent)...........................................................................................................................06
Dossier de diagnostics techniques (diagnostic reports)...............................................................................................................06
UK Solicitors/lawyers & notaires....................................................................................................................................................08
Notary Public................................................................................................................................................................................................09
Avocats.......................................................................................................................................................................................................... 10
The deed of sale and the notaire.................................................................................................................................................... 10
L’état civil and la procuration..........................................................................................................................................................11
Inheritance laws & ownership........................................................................................................................................................ 12
Purchase en indivision..................................................................................................................................................................................13
Purchase en tontine.....................................................................................................................................................................................13
Company purchase.......................................................................................................................................................................... 14
Special types of sale/purchase....................................................................................................................................................... 16
Vente en viager.............................................................................................................................................................................................16
Purchase and leaseback – VEFA/Co-ownership charges.........................................................................................................................16
Sale by auction (vente aux enchères)......................................................................................................................................................... 17
Annual taxes relating to property...................................................................................................................................................17
Taxe fonciére................................................................................................................................................................................................. 17
Taxe d’habitation........................................................................................................................................................................................... 17
Redevance audiovisuelle (television tax)................................................................................................................................................... 17
Income tax in France & the UK................................................................................................................................................................... 17
Wealth tax.....................................................................................................................................................................................................18
Other taxes...................................................................................................................................................................................... 18
TVA - French VAT..........................................................................................................................................................................................18
Capital Gains tax..........................................................................................................................................................................................18
Inheritance & Gift tax...................................................................................................................................................................................19
Costs and expenses related to property purchase in France....................................................................................................... 19
Notaire’s fees.................................................................................................................................................................................................19
Agency commission......................................................................................................................................................................................19
General guidelines & tips for purchasers of property in France...................................................................................................20
Before setting off for France....................................................................................................................................................................... 20
When you have found your dream home.................................................................................................................................................. 20
Before signing the preliminary contract.................................................................................................................................................... 20
Post contract & before the deed of sale is signed................................................................................................................................... 20
Signature of the deed of sale.......................................................................................................................................................................21
After the deed of sale has been signed......................................................................................................................................................21
Reminder.......................................................................................................................................................................................... 21
Our Service.......................................................................................................................................................................................22
3
A beginner’s guide to purchasing property in France
With a surface of over 210,000 square miles and 1,750 miles 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 is not surprising that so
many people are buying second homes in France or even going to live there
permanently.
Buying a property in France need not
be a traumatic or worrying exercise
provided that a purchaser understands
and accepts that the legal procedures
in France may differ from those with
which they are familiar.
In the following pages, we shall
briefly explain the differences and
identify the main pitfalls. This
introductory booklet is not, however,
intended to be a comprehensive guide
and purchasers should therefore
obtain individual advice before
embarking upon any transaction.
STAGES OF A PURCHASE
As in the United Kingdom the
purchase of property in France
is achieved in two stages; the
preliminary contract and, later,
signature of the acte authentique
de vente or deed of sale. Here,
however, the similarity ends.
The preliminary contract used in
England, for example, is very
different from the type of contract
used in France, which is signed
at a much earlier stage in
the transaction.
Furthermore, in France there is no
single form of preliminary contract
used for all sales and contracts may
vary greatly in content and appearance.
In addition, a contract for the sale
of a new property differs significantly
from a contract for the sale of an
existing property.
Before signing any paperwork,
the purchaser should ensure that
he understands the document
offered to him and that it contains
all the appropriate clauses for
his protection.
We can review the French contract,
explain its terms and negotiate with
the vendor or his lawyer to make any
necessary amendments or additions
for your protection.
PRELIMINARY CONTRACTS FOR
EXISTING PROPERTIES
Preliminary contracts used for the sale
of existing properties fall into three
main types, known as 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 rather like
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 his deposit. Deposits
(usually 5% or 10% of the purchase
price) are paid on signing a contract.
The compromis de vente on the other
hand binds both parties and a failure by
BUYING A PROPERTY IN
FRANCE
the purchaser or vendor to complete
the transaction could result in a claim
for damages.
There is no universal rule about what
happens to the deposit if a transaction
does not proceed. This is governed by
the contract. The form of contract
must, therefore, be carefully examined
to ascertain whether 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.
CONTRACTS FOR NEW PROPERTIES
Contracts for the sale of new “off plan”
properties differ from those used for
the sale of existing properties and are
subject to strict laws for the protection
of the consumer.
The contracts in use include contrats
de réservation (reservation contracts)
and the vente en l’état futur
d’achèvement or VEFA (sale in future
state of completion).
handover of the property is delayed by
many months.
The reservation contract provides
for payment of a deposit (up to 5%)
and subsequent stage payments
and conditions suspensives.
Some forms of contract eg so called
commercial or parahotel contracts
were devised to try to avoid the strict
legislation designed to protect the
consumer. The interests of purchasers
can be severely prejudiced by this
type of contract and they should
seek advice before signing any such
contract. Pressure from a developer’s
sales office should always be resisted!
Most reputable builders and estate
agents are perfectly prepared to wait
whilst potential purchasers seek
independent advice on the contents
of a contract.
The deed of sale is signed before
the building work is complete
(usually once the foundations have
been laid) and the purchaser acquires
ownership of the land and whatever
buildings have been built upon it at
the time the deed of sale is signed.
He automatically acquires 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.
Purchasers should be aware that such
contracts and deeds usually contain
stipulations regarding time delays in
the building programme. Where such
delays are the result, for example, of
bankruptcy of a contractor or of force
majeure, the purchaser would not
be entitled to compensation even if
CONDITIONS SUSPENSIVES
Whatever its form, all preliminary
contracts should contain conditions
suspensives (ie conditions precedent
or “get out” clauses).
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. The contract
5
A beginner’s guide to purchasing property in France
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, no existing mortgages
(hypothèques) or charges affecting
the property and no claims upon the
property by the local authority or the
French State. 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 his own handwriting,
that he does not require a loan.
These conditions precedent are
particularly important because
in France it is customary to sign
the preliminary contract and pay
the deposit before any enquiries are
raised and before a mortgage advance
has been 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 after the
purchaser has obtained a mortgage
offer. The condition suspensive
relating to the mortgage advance
is obligatory; others are not.
Purchasers need to ensure that
all other appropriate conditions
suspensives to meet their needs
are included in the contract.
The mortgage condition will
normally include a time limit within
which the purchaser must apply for/
receive his mortgage advance. Should
he fail to do so the loan condition will
be deemed to be satisfied and the
purchaser could not subsequently
rely upon it to withdraw from the
transaction if for any reason he later
finds himself unable to raise the
finance to proceed. It is essential to
follow the terms of this condition
to the letter!
DOSSIER DE DIAGNOSTICS
TECHNIQUES
The dossier de diagnostics techniques
is the collective name for the
obligatory reports which must be
provided to protect both the vendor
and purchaser.
These are increasing regularly in
number and are all provided at the
vendor’s expense.
The tests required vary depending on
the region and property. The notaire
will ensure that any certificates
required are obtained and attached
to the contract and/or deed of sale in
due course. The price stipulated in the
contract normally takes account of any
financial consequences arising
from the condition of the property eg
with regard to termites, asbestos, lead
poisoning, energy performance and
major natural and technological risks.
7
A beginner’s guide to purchasing property in France
Do you need a UK legal advisor/solicitor to help with your purchase of
property 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, for example, where the English lawyer is only
permitted to act for either the vendor or the purchaser, but not for both.
Under French law, a transfer deed
or acte authentique, must be
prepared by a notaire and this
profession has a monopoly in matters
relating to purchases, sales, exchanges,
co-ownerships of real estate, leases,
mortgages, etc., however, many people
consider having the additional security
of their own independent legal
advisor/solicitor is a necessity rather
than an option.
The roles of notaires and solicitors 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. 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.
So, 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 he lives.
The notaire does not represent
the interest of either party in the
transaction. Your independently
appointed specialist UK Solicitors/
legal advisors, however, look after
your personal interests, taking
account of 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. Translation of a contract is
at best inadequate; all too often it is
misleading. You are bound by the
terms of the French document,
not the translation, which has no
legal value whatsoever. A detailed
explanation of the legal implications
is far more useful. Before you sign
a contract, it is also essential that
French inheritance laws be taken
into consideration.
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.
He also guarantees the morality and
the validity of contracts and is directly
responsible for the deeds he receives
and for the money with which he is
entrusted. There are only some 8,000
notaires in France (as compared to
some 80,000 solicitors).
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. He is never involved
in contentious matters, thus if
a serious disagreement arises
between vendor and purchaser he
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.
UK SOLICITORS/LAWYERS
& NOTAIRES
There is a considerable difference
between the way a solicitor 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 nor to give them progress
reports as the matter progresses. You
may therefore hear nothing from the
notaire from the date the preliminary
contract is given to him until a few
days before the proposed completion.
This can be problematic because,
unless you raise the subjects, in
general, he will not automatically
explain French inheritance laws,
different methods of tenure, complex
co-ownership regulations (even though
you will be deemed to have knowledge
of them even if signed on your behalf
by virtue of a power of attorney), etc.
costs as the two notaires must share
fees between them. Again, however, in
practice this can cause delays and the
use of a suitably experienced lawyer in
this country will generally be quicker.
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 he will
generally instruct the notaire. There is
nothing at all to prevent the English
purchaser having a separate notaire to
look after his interests and this does
not generally result in an increase in
The practice of a notary has two
significant differences from that of
a solicitor. First, his duty is to the
transaction as a whole and not just to
one of the parties. A Notary may act
for both parties to a transaction as
long as there is no conflict between
them and his duty is to ensure that the
transaction they conclude is fair to
Notary Public
The roles of French notaires and that
of UK Notaries are very different. A
Notary is a qualified lawyer; a member
of the third and oldest branch of the
legal profession in the United Kingdom,
appointed for life by the Archbishop of
Canterbury and subject to regulation
by the Court of Faculties. Most, but
not all, are also solicitors.
Notaries must be fully insured and
comply with stringent practice rules
and rules relating to conduct and
discipline.
both sides. Secondly, a notary identifies
himself on documents by the use of
his 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 &
Commonwealth office.
Avocats
Should you have problems and/or
matters become litigious, you may
need assistance from an avocat, a type
of French lawyer who specialises in
this area and also general legal matters
outside the remit of a notaire.
9
A beginner’s guide to purchasing property in France
THE DEED OF SALE AND THE
NOTAIRE
Whether the transaction concerns
an existing property or part of a new
development the final stage is the
signature of the acte authentique de
vente or deed of sale which is drawn
up by a notaire.
The preliminary contract may well have
been drawn up by the estate agent
selling the property in which case
he would normally only forward the
details of the transaction to the notaire
after it has been signed. Alternatively,
the notaire may himself have drawn
up the preliminary contract. In
either case the notaire should then
proceed to carry out the various basic
enquiries with the local authorities.
Once satisfied that there is nothing of
significance affecting the property he
calls upon the parties to attend at his
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, except
in the case of new developments
where a single notaire appointed by
the developer usually deals with
all sales. In practice, however, a
non-French purchaser may find that,
because he is a stranger to the area,
the estate agent or even the vendor
will nominate the notaire.
If a vendor or agent has appointed
a notaire , the purchaser may still
appoint a notaire of his choice at
no additional cost; the two notaires
sharing the “notaire’s fees”. In practice,
for purchases of older property, if you
appoint independent specialist legal
advisors with expertise in Anglo/French
property matters, you may not feel the
need to involve a second notaire.
A period of between 2 – 3 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
or co-ownership rules. These are often
lengthy and complicated documents
and it is particularly important for
the purchaser to understand their
provisions as a declaration to this
effect is made in the deed of sale.
Most French notaires do not keep
clients constantly informed as to
progress, nor automatically advise
upon or explain the contents of the
preliminary contract, deed of sale
or co-ownership regulations. Prior
to completion, purchasers should
therefore take independent legal
advice from suitably experienced,
independent lawyers before any
such document is signed if they
wish to be fully informed.
A translation of a document is
not enough. A translator canno
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.
L’état civil and la procuration
The French notaire will require
evidence of the purchaser’s civil and
marital status (état civil). Non- French
purchasers will usually be asked to
provide copies of birth certificates,
marriage certificates, divorce decree
(if appropriate) and passports. You may
be asked for details of your marital
regime and/or carnet de famille or
livret de famille. The latter does not
exist in the UK but is a family history,
containing details of births, marriages,
separation or divorce and deaths
within the family. To supply the
relevant information, it will be
necessary to produce certificates
relating to these (sometimes it
is essential to supply original
duplicates issued by the Registrar
within the preceding 3 months).
in the presence of a Notary Public.
This document appoints a third party
(often a friend or more 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 sometimes possible to sign a
private power of attorney (procuration
sous seing privé) which does not
need to be executed in the presence
of a Notary Public. This is increasing
uncommon, however, and if a loan is
involved it will be necessary to observe
this formality of notarisation. In most
cases it is also necessary to obtain a
legalisation certificate (apostille) from
the Foreign & Commonwealth Office.
Although a deed of sale should
be signed in the presence of the
notaire in France it is possible to
achieve this by means of a power
of attorney (procuration).
To avoid having to travel to France
purely for the signature of the
documents, purchasers may sign
a power of attorney in the UK, usually
11
A beginner’s guide to purchasing property in France
French laws of succession provide that where a person dies leaving surviving
descendants, he may not freely dispose of his 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.
Even where a husband and wife buy
French property jointly, surviving
children may be entitled to share in
the estate 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.
French inheritance laws, at present,
apply to an individual’s whole estate
if he moves to France (except for real
estate in the UK which may devolve
under UK law for UK domiciled
owners). From August 2015 residents
of France will 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.
For UK residents, this is NOT the
case. The UK has opted out of this
regulation and so it will only apply
for UK Nationals resident in the
Succession Regulation (SR) Zone.
This means that UK nationals resident
in France should be able to choose
the law of England & Wales to apply to
their entire estate from August 2015
onwards, should they wish. Before
doing so, appropriate advice should be
taken from their solicitors regarding
the possible consequences of
this change.
UK Nationals resident in the UK
with assets in the SR Zone will not
have this option, however, for the
time being at least. Whilst the law
of the habitual residence (UK) will
indeed apply, that law includes
Private International Law and renvoi.
As a result, French succession laws
will continue to be applied to the
local immovables (real estate) only
of UK resident owners, as is the
case at present.
Purchasers of property in France are
free to decide how to structure their
ownership eg whether the purchase
should be in the name of an individual,
a number of individuals or a French
company (société civile immobilière
or SCI).
Despite major reforms introduced in
August 2007, by the French President,
Nicolas Sarkozy, the restrictions on
who can inherit under French law are
largely unaffected and children still
inherit in priority to a spouse.
Under current French succession
laws a surviving spouse/partner
will NOT automatically become
the legal beneficiary prior to any
children’s rights in the event of the
spouse-owner’s death.
Réservataire
Réserve (minimum)
Quotité Disponible
Disposable Portion
1 Child1/21/2
2 Children
2/3 Equally between them
1/3
3+ Children
3/4 Equally between them
1/4
INHERITANCE LAWS &
OWNERSHIP
In France, 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 which must be respected.
Where children survive a parent, the
French rules of réserve provide 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 below, leaving a
percentage which is freely disposable
in accordance with the wishes of the
deceased. If no alternative wish is
expressed re the disposable portion in
the deceased’s Will the entire estate
would normally be divided between the
children and spouse.
It may be possible to take certain steps
to improve the spouse’s position.
Unlike in the UK, where the entire
estate is taxed, inheritance tax in
France is paid by each individual
beneficiary and the tax-free
allowances, taxable inheritance and
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 inheritance
tax, however, unrelated heirs pay tax
at the punitive rate of 60%.
Purchase 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 his
heirs in accordance with the French
succession rules of the réserve and
only after these are satisfied, will
the provision of any Will/Codicil
come into effect.
Consequently, the surviving
indivisaire may ultimately own
the property with the deceased’s
children, surviving parents or other
heirs of a more distant degree.
If one indivisaire wishes to dispose
of the property and the other 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 lessen the likelihood
of such unfortunate situations
arising eg 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.
Purchase en tontine (similar to
UK joint tenancy)
The method of purchasing en
tontine is sometimes suggested
as a way of minimising the French
rules of succession. 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. It was often viewed
in France in the past as a kind of
lottery; who would survive the
longest and be the sole owner?
13
A beginner’s guide to purchasing property in France
Whilst 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 eg a sale
cannot be forced. In addition, it may
even have serious tax implications
for the surviving owners.
The tontine arrangement can only be
included in the deed of sale prior to
signature and may be cancelled at a
later date if all the tontiniers are in
agreement. It cannot be reinstated
at a later date.
It is also worth noting that if certain
very rare criteria are met in full it could
be a tax efficient way to purchase
with tax falling due as if on a sale
of the property (rather than on an
inheritance), when it passes on death
to the surviving co-owner. This only
applies to very low value property.
This option would clearly need
careful consideration and it is most
important that purchasers should
be fully aware of both the advantages
and disadvantages of purchasing in
this way.
For married couples, people with a
French PACS (French civil partnership)
or UK civil partnership it would allow
the property to pass to the survivor
absolutely and this class of heirs is now
exempt from French inheritance tax.
Company purchase
Another method of purchasing
which may help to minimise the
consequences of French inheritance
law, particularly where the proposed
purchase is to be made by a number of
people who are not all members of the
same family, is to make the purchase
in the name of a company. French law
has created a specific type of property
owning company for this purpose the Société Civile Immobilière (SCI).
The use of such a company has
considerable advantages in certain
circumstances. For tax purposes
in France, it is transparent so that
if it purchases a property which is
subsequently sold at a profit, the
capital gain arises in the hands of the
participants who are each liable to
a proportion of the tax. The SCI is,
nevertheless, a separate legal entity
from its members so that the property
is owned by the SCI and not the
members personally. This has the
advantage that in the case of a
group purchase the departure of a
member from the group or the arrival
of a new member does not cause any
change in the title to the property.
Thus only an internal transfer of shares
would take place with the consequent
taxes and fees falling due.
The main reason for purchasers using
such a structure is that, as each owner
merely has a participation (part) in
the company he is not deemed under
French law to be the owner of French
real property. A UK resident can,
therefore, dispose of his participation
in the company as part of his English
estate as it is movable property,
without being subject to the restrictive
French inheritance laws, provided
he remains resident in the United
Kingdom. French inheritance tax
remains due, however.
The purchase of French property may
be carried out in the name of an English
limited company but there are certain
points regarding tax eg potentially
punitive capital gains tax (plusvalue)
which should be carefully considered
before acquiring property in France in
the name of an English company.
A 3% annual tax may be payable in
France on company-owned realty;
where the appropriate steps are taken
it may be possible to avoid this.
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A beginner’s guide to purchasing property in France
The vente en viager
Although relatively rare, a purchaser
may be offered a sale en viager
(a sort of reversionary annuity).
This is a method whereby an elderly
person who perhaps has no children
upon whom to rely for support,
sells property on an instalment
basis. Possession may or may not
be given to the purchaser on the
date of completion. On that date
the deed of sale is signed and the
purchaser pays a relatively small
proportion of the purchase price.
The deed does not define the
purchase price but merely provides
that a monthly or quarterly sum
shall be paid by the purchaser
to the vendor for so long as the
vendor shall live, thus providing
the vendor with an income for
life. Whether or not the purchaser
obtains a bargain depends upon
how long the vendor lives!
Purchase and leaseback VEFA /Co-ownership charges
The concept of sale and leaseback
was launched by the French
government in the 80s to boost
tourism and create employment.
It is a popular option for acquiring
property in France in new
developments usually in the
various ski and seaside resorts
but also in some towns. Here the
purchaser is entitled to buy
a freehold, apartment usually
at a discounted price (French
VAT refund) on condition that
he immediately grants a
(commercial) lease of the
apartment back to the
developer or leaseback company
for a minimum of 9 to 11 years,
depending on the contract.
You can then renew the lease
so that it runs for a maximum of
20 years. To qualify as a leaseback,
the properties must be furnished
and meet a minimum standard.
These are usually acquired as off
plan (VEFA) purchases.
The management company pays a
rent to the purchaser, finds tenants,
provides services and facilities and
takes responsibility for certain aspects
which are normally the responsibility
of the owner eg he may discharge local
taxes or pay the annual maintenance
or management charges. Usually
included in the rent paid by the
developer to the purchaser is the right
for the purchaser to use the property
for a number of specified weeks each
year if desired. The lessee (preneur) is
then free to sublet the property for the
rest of the year and to retain the rent
obtained. These contracts vary greatly
and it is important that the purchaser/
lessor (bailleur) understand the full
terms of the contract before signing
and know which are their continuing
responsibilities and which are those of
the leaseback company’s.
As all new property has French VAT
(TVA) included in the total price, the
refund in effect represents a 16.4%
discount to market value.
If sold within 20 years the refunded
French VAT must be repaid pro rata
(unless the commercial lease is
continued by the new owner and
the tax authorities permit this). The
amount repayable would be reduced
by 5% for each year of ownership. On a
sale, Capital Gains Tax (CGT) should
also be borne in mind - in France and
the UK, for UK residents.
Whilst attractive to many buyers,
leaseback schemes can be complicated
and can present certain risks to the
unaware so purchasers are advised
to obtain detailed and specific legal
advice if they are considering one of
these products to ensure that they
have a good understanding of the
commercial lease, its legal and
tax consequences. A number of
SPECIAL TYPES OF SALE /
PURCHASE
developments have experienced
difficulties in recent times, resulting
in problems for owners/lessors
including non payment or reduction
of rental income, changes in lessee,
etc, so it is of paramount importance
that buyers enter into agreements
in full knowledge of the risk and
consequences it may have.
Sale by auction
(vente aux enchères)
A sale may also be the result
of a bankruptcy, repossession or
an attempt to settle the estate
of a deceased owner. It is common
in such circumstances to sell by
auction (aux enchères) and 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 it is essential
that the purchaser is fully aware of
these as well as all the costs and
charges entailed.
ANNUAL TAXES RELATING
TO PROPERTY
The two principal local taxes
payable in France fall into two
categories: the taxe foncière and
the taxe d’habitation.
Taxe fonciére
The taxe fonciére is payable by
the owners of properties in France.
Although it is payable towards
the end of the year, it is charged to
the person who owned the property
on 1 January and if the property
changes hands in the course of
the year should be paid by both
owners on a pro rata basis. Owners
of new properties may usually claim
exemption for the first two years
but must take the appropriate steps
to do so in good time.
homes, holiday homes and TVs
without aerials used only as a device
for viewing videos and DVDs.
Notification should be made when the
TV is bought (new or used TVs from a
retailer will be declared by the shop),
to the Mairie (Town Hall).
Taxe d’habitation
The taxe d’habitation on the other
hand is payable by the occupier of the
property in France at 1 January. This
too is payable annually towards the
end of the year but a vendor should
not expect any pro rata proportion to
be refunded and payment of this tax is
entirely his responsibility.
Income Tax in France & the UK
If your property is let you may be
liable to pay income tax in the UK
and France (impôt sur le revenue).
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.
Redevance audiovisuelle
(television tax)
The redevance is basically a TV licence.
It is payable by every household with
a television set and helps fund public
programming; each household pays the
same amount regardless of how many
televisions are owned at the property.
Payment is also due for TVs in second
There may also be other local taxes
due (eg for refuse removal) but, in
general terms, the total of these local
taxes, in most parts of France, is lower
than the average rates or council taxes
payable in Britain.
Tax returns may be completed
online; tax payers who do this have
an extended tax return deadline
into June (dates vary depending
on the location in France).
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A beginner’s guide to purchasing property in France
Income generated on a French
property must also be declared
to the Revenue in the UK and
an allowance is granted for any
income tax paid on this in France.
Wealth tax
French wealth tax is payable on
net assets above 1,310,000€
owned at 1 January.
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.
Non-residents with property in
France are only liable for wealth
tax on assets physically situated
in France (ie not purely financial
investments) and the onus is on
them to obtain and submit their
declaration by the due date.
The deadlines for filing wealth tax
returns are as follows:
• 16 June for French residents:
• 15 July for residents of other EU
countries (including Monaco)
• 1 September for residents of
countries outside the EU.
Whilst 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 an owner is
liable to pay wealth tax, they are
entitled to collect arrears.
Since 2013, there has been a wealth
tax cap in operation and the total
taxes should not exceed 75% of
income but the calculation is complex.
The French Wealth Tax entry
threshold is now 1.31 million Euros
but of that sum only the first
800,000 Euros are tax-free.
OTHER TAXES
TVA - French VAT
French sales tax (known as VAT in
the UK) is called TVA - Taxe sur la
Valeur Ajoutée. The current rate of
19.6% is generally applicable to
most goods and services.
There are ways to minimise one’s
liability which may be suitable if
the potential tax due appears to
be considerable.
Capital Gains tax
CGT in France is payable on the sale
of land or buildings and is called impôt
sur les plus values immobilières. It is
also payable on the sale of shares and
certain other personal property. 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.
To calculate the tax, the total
value of assets for the household
are taken into account and all
outstanding debts and overdrafts
as at 1 January deducted.
If this chargeable wealth figure
exceeds 1,310,000€ wealth tax,
is payable, calculated on your
wealth in excess of 800,000
Euros, using tax bands as
indicated below.
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
Non-residents also are now liable
to pay Prélèvements Sociaux (social
charges) on a property sale at the
standard rate of 15.5%. Consequently,
for an EU resident who is not resident
in France this raises the tax payable
from 19% to 34.5% and for a non-EU
non-resident from 33.33% to 48.83%.
Where the capital gain exceeds
50,000€, additional tax is payable
as follows:
From
To
Allowance
Tax
50,001
100,000
2%
100,001
150,000
3%
150,001
200,000
4%
200,001
250,000
5%
250,001
6%
The French Government have
again changed the CGT exemption
qualification period for properties a
property must now be owned for 22
years before it is free from capital gains
tax and 30 years for the social charges.
Taper relief now applies at a rate of 5%
between 6 and 21 years of ownership
and 4% 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% or 33.33%.
The taper relief in respect of the gain
liable to the 15.5% social surcharges is
calculated at 1.65% for 6 to 21 years
of ownership, 1.6% for the 22nd year
and 9% thereafter leading to a total
exemption after a full 30 years of
ownership only.
For sales taking place between 1
September 2013 and 31 August 2014
an exceptional extra 25% reduction in
the taxable gain was introduced as an
incentive to boost the sales market.
For UK residents, the sale and gain
must be declared to the Revenue also
and is potentially taxable in the UK.
COSTS AND EXPENSES RELATED
TO PROPERTY PURCHASE IN
FRANCE
An allowance should be given for the
basic CGT paid in France but the social
charges are currently excluded from
the charges for which credit is allowed
against UK capital gains tax. Despite
the French administration determining
that Prélèvements Sociaux are taxes
rather than social charges, HMRC
currently tae the opposite view and
therefore this element of “tax” cannot
be offset against UK capital gains tax
and can only be accounted for in the
UK calculations as a deduction against
the sale price.
Notaire’s fees
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).
Inheritance & Gift tax
Spouses and French and UK civil
partners now benefit from inheritance
tax exemption in France.
An average purchaser should expect
to pay notaire’s fees in the region
of between 6% and 8% in the case
of existing property. For an off plan
purchase / new property fees appear to
be lower around 3% but the buyer will
also be paying VAT at the rate of 19.6%.
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
5%-40%. Non-relatives suffer the most
punitive rate of 60% and receive the
lowest tax-free allowance -only 1,594€.
Athough these are known as frais
de notaire or the notaire’s costs, the
notaire himself only receives a small
proportion for his services as the
majority of the costs consist of taxes
and stamp duties.
Agency commission
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 - the practice varies from
region to region and will be indicated in
the contract. It is essential to establish
if the purchase price is inclusive or
exclusive of these fees. Often a price
quoted by the estate agent will be an all
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A beginner’s guide to purchasing property in France
inclusive price so that it is the vendor
who pays the commission but equally
the preliminary contract (often drawn
up by the estate agent) may provide
that the commission be paid by the
purchaser in addition to the agreed
price. It is important to ensure that
this point is clear before signing the
preliminary contract. 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. We have established a
vast network of contacts over many
years, so can help you in locating a
suitable professional to assist you.
A. Before setting off for France
1. If possible, seek preliminary legal
advice even before going to France.
We would be pleased to assist from
the earliest stage.
2. Consider whether the property
should be purchased in a single
name, in joint names or in the name
of a company, bearing in mind
French inheritance laws.
3. If you are to seek a mortgage to
finance the acquisition, compare
mortgage rates & conditions, lending
criteria, etc., of various lenders or
mortgage brokers in the UK and/or
France to ascertain in advance what
you can afford to buy (including
eg fees, renovation costs). Life
assurance is usually essential with
French lenders though certain banks
may offer special arrangements
for suitable clients.
4. Find out which documents will
be required to support your loan
application (some may not be
readily available).
5. Consider the exchange rate
implications – one off and ongoing
and speak to foreign exchange
companies re options, as well
as your bank.
B. When you have found
your dream home
1. Obligatory reports (similar to HIPS)
are now prepared at the vendor’s
expense. A good deal of information
is supplied and much is for
information only and does not allow
the purchaser to negotiate on the
sale price as a result.
2. If possible, inspect the property
carefully, including loft and cellars,
etc. Look for evidence of damp, dry
rot, subsidence cracks, woodworm,
etc. If necessary arrange to have a
survey. The contract will state that
you are purchasing the property as
seen and you will have no recourse
against the vendor at a later date for
any problems which arise.
3. Inspect the surrounding area for
possible problems eg unpleasant
smells, noise, rights of way across
your property, etc.
4. Ask at the Mairie (Town Hall) for
development plans of the area
(motorway, airport, nuclear power
station, refuse tip, etc).
C. Before signing the
preliminary contract
Have the contents of this contract
checked and explained to you by
independent, specialist legal advisors,
ensuring you are aware of the legal
implications and that it includes any
particular clauses or conditions you
require, details of any items which you
consider to be included in the purchase
price eg building materials on the
property, furniture, etc., and a clear
indication of the boundaries of
your property outlined, if possible, on
a plan cadastral (land registry plan).
GENERAL GUIDELINES &
TIPS FOR PURCHASERS OF
PROPERTY IN FRANCE
D. Post contract & before the
deed of sale is signed
1. Deal with any mortgage application
in good time
2. If a company is to be formed, deal
with all formalities as quickly as
possible.
3. Agree a completion date and arrange
travel/accommodation.
4. Ask the notaire to provide (at least
three weeks before the completion
date) the following information:
• a town planning document
(certificat/note d’urbanisme)
• a draft deed of sale
• a power of attorney (procuration),
if required
• confirmation of the balance of the
purchase price + notaire’s fees and
taxes (so that monies will arrive in
France in good time).
5. Make sure the funds are transferred
in full to the notaire in good time
and that all bank charges in the UK
and France are deducted at source,
not from the money transferred. If
in doubt, send extra and the notaire
will refund it in due course. If there is
a shortfall, it will delay completion.
E. Signature of the deed of sale
This takes place at the notaire’s office
in person or by power of attorney.
F. After the deed of sale has
been signed
1. Obtain temporary proof of ownership
(attestation de propriété).
2. Obtain certified copy of the deed
of sale (expédition) – often not
available for several months after
completion with a full statement
of account.
3. Arrange for transfer of any goods
and furniture to France, if required.
4. Consider asking a neighbour or
appointing a keyholder in France to
forward any post (to avoid missing
notification of important documents
etc.), inform you of any problems or
damage to the property (to facilitate
insurance claims and carry out
urgent repairs).
REMINDER
Purchasing a home in the UK is a
major undertaking, financially and
emotionally. Purchasing in another
country with unfamiliar laws and
language is at best equally stressful.
•
•
•
Be sure you know what you are
signing;
Never write anything on a
contract unless you are sure that
you understand fully both the
content and legal implications
of what you are writing;
Obtain independent legal advice
before signing anything or
making an offer.
This will ensure that the transaction
proceeds as smoothly and efficiently
as possible.
5. Arrange to connect utilities, set up
direct debits (prélèvements) and
arrange for bills to be sent to your
home address if possible.
6. Arrange insurance on the property in
your name to come into effect from
the day you become the legal owner
(at completion).
7. Open a French bank account to
facilitate payment of bills, etc.
21
OUR SERVICE
This booklet is not intended to be a comprehensive guide
to buying French property but merely aims to make the
reader aware of some of the more important aspects.
We can advise upon all aspects of the transaction from
preliminary contract through to completion and can help
a potential purchaser 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
of property in France. Many ancillary matters may be dealt
with as required, such as setting up French property owning
companies and commercial companies, French tax and
inheritance planning, letting your French property, etc.
Whether you are a private purchaser, a property developer or
you are planning to acquire business or commercial premises
in France, we can take the worry out of the transaction.
PRIMARY CONTACT
Lindsay Kinnealy
Principal Lawyer, International Property
Telephone: 0161 909 4215
Email: [email protected]
Pannone part of Slater & Gordon have
offices nationwide. To find your local
office visit www.pannone.com
Slater & Gordon (UK) LLP is authorised and regulated
by the Solicitors Regulation Authority.
www.slatergordon.co.uk