I- The buying process
1. How many persons will be involved in my property purchase in France?
2. What is a Notaire?
3. Once my offer has been accepted, what will happen next?
4. Who will draw up this first contract?
5. Will I have to pay a deposit?
6. Will there be a survey?
7. Once I have signed the first contract, what will happen next?
8. When will I own the property?
9. What happens if I don’t understand what is happening during the signing in the Notaire’s office?
10. How long does this all take?
II - Financial matters
11. What costs will be involved at the beginning?
12. Are there any other fees that I should be aware of?
13. What taxes will I have to pay on the property?
III - Inheritance
14. Which law will apply when I die?
15. How does French inheritance law work?
16. Is the property automatically transferred to my spouse when I die?
17. What inheritance tax will my estate have to pay?
IV - French Taxation (U.K. Residents)
18. What are the annual French taxes on owning a property?
19. How much is the annual French Wealth Tax?
20. Is the interest on the mortgage tax deductible?
21. Should I have an SCI?
22. What's my tax position should I receive rental income?
23. When I die are there any taxes payable?
24. If I want to sell my property, are there any taxes payable?
25. Can I reduce my taxes by using a mortgage even though I can afford not to borrow?
|I- The buying process
Q1. How many persons will be involved in my property purchase in France?
A. 3 Persons will be involved:
The Estate Agent who markets the property
The Notaire who is legally represented for drawing up the contracts and undertaking searches
Q2. What is a Notaire?
A. A Notaire is a French civil law notary, a public officer working under the jurisdiction of the Ministry of Justice who gives authenticity to legal documents requiring formality under French Law. (Commonly family matters, real-estate deeds and business law).
Notaires are also property experts in France, with exclusive access to the M.I.N. database (which contains the information regarding property transactions). This gives the Notaire unique insight into the property market, thus allowing him/her to value property, conduct transactions and deal with tax and financing matters.
A qualified Notaire must negotiate all property matters in France. The French government sets fees charged by Notaires.
Q3. Once my offer has been accepted, what will happen next?
A. You may be asked to sign an initial document registering your interest in the property immediately. Shortly after the offer has been accepted, you will sign the first contract. This first contract involves both parties into the transaction and includes a number of conditions. The purchaser will benefit from the 7 day cooling off period at this stage.
Q4. Who will draw up this first contract?
A. Either the agent or the Notaire depending on the circumstances.
Q5. Will I have to pay a deposit?
A. In case a deposit is required, you will have to pay the equivalent of 10% of the purchase price. The deposit is payable to either the Agent or Notaire.
Q6. Will there be a survey?
A. It is not a common practice in France as it is in England but if you need one to be carried out you will have to do it within the 7 day cooling off period.
Q7. Once I have signed the first contract, what will happen next?
A. The Notaire will undertake all the searches, contact administrative and complete the necessary formalities to conclude the sale, including checks on the title to the property. He will also be responsible for ensuring that any checks that are necessary (e.g. termites) are undertaken.
Q8. When will I own the property?
A. You will sign a deed in front of the Notaire and the ownership of the property will pass with this signing. A power of attorney can be drawn up giving somebody else permission to sign on your behalf if you are unavailable. You will take possession of the property immediately afterwards.
Q9. What happens if I don’t understand what is happening during the signing in the Notaire’s office?
A. FRENCH PROPERTY EXPERTS’ agents will come along and be available if you have any questions. They will already have spoken to the Notaire to ensure that he or she understands all your requirements.
Q10. How long does this all take?
A. Usually it takes three months from the signing of the first contract to the signing of the deed.
|II - Financial matters
Q11. What costs will be involved at the beginning?
A. The agent’s fees are usually up to 10% of the purchase price and are paid by the purchaser. The Notaire's fees are approximately 6% to 8%. The Notaire's fee is made up of government taxes due upon the transfer of a property and has to be paid by the purchaser.
Q12. Are there any other fees that I should be aware of?
A. There may be a fee in relation to surveys and reports into the presence of termites, asbestos and lead. There may also be fees for a surveyor if land is to be divided and these may be payable by the purchaser. There will also be a registration fee if you subscribe French mortgage.
If the reports are mandatory, the vendor will pay them otherwise you will have to commission and pay for yours. There could be a fee if you require a full translation of your French legal contract into an English legal contract.
Q13. What taxes will I have to pay on the property?
A.There are two main types of tax on the property itself, land and occupancy tax (“Taxe foncière” and “Taxe d’habitation”). These are based on the rental value of the property and are paid annually..
|III - Inheritance
Q14. Which law will apply when I die?
A. French law will apply to the inheritance of the property in France.
Q15. How does French inheritance law work?
A. The French inheritance law is complex and the way it will apply to you will depend on your particular circumstances. French law gives certain rights to family members, and these rights cannot be ignored.
Q16. Is the property automatically transferred to my spouse when I die?
A. Most of the time it is not. Nevertheless you can make different arrangements to protect the survivor.
Q17. What inheritance tax will my estate have to pay?
A. In France, inheritance tax is based on the amount each individual receives and their relationship to the person who has died. Therefore, different methods of calculation of the tax apply to each beneficiary.
|IV - French Taxation (U.K. Residents)
Q18. What are the annual French taxes on owning a property?
A. The Taxe d’Habitation (equivalent of the Council Tax in England) is paid if you own a residential property and use it yourself It is paid by the tenant if you let the property. It is paid on 1st January in any year.
The owner of the property pays the Taxe Foncière, even if he does not occupy it.
New houses, or renovated properties, used as your home are spared Taxe Foncière for the first two years after construction
Q19. How much is the annual French Wealth Tax?
A. If you are not a French tax resident, wealth tax is payable only on your net French assets in excess of €750,000 (2006). The rates start at 0.55% and go up to 1.8%. As an example:
||Wealth Tax Payable
The rates in full for 2006 are:
|Gross Worldwide Assets of the household
||Tax on Band
|€750,000 to €1,200,000
|€1,200,001 to €2,380,000
|€2,380,001 to €3,730,000
|€3,730,001 to €7,140,000
|€7,140,001 to €15,530,000
The same rates apply to French residents – but on a worldwide assets basis.
Q20. Is the interest on the mortgage tax deductible?
A. It is deductible against rental income in France and the UK if it is a loan (not an overdraft) and was taken out to purchase or improve the property (or to refund an existing qualifying loan).
Q21. Should I have an SCI?
A. SCI’s are not usually suitable for UK tax residents because of the possible extra annual UK benefit in kind tax charge. This is an annual UK tax payable on the benefit in kind of a company providing you with accommodation. This can amount to the value of the annual market rent. An SCI may be suitable where you are considering letting the property primarily rather than occupying it yourself
The advantage of the SCI for non French residents is that the French succession laws do not apply to the shares of an SCI.
Q22. What's my tax position should I receive rental income?
A. If you receive any rental income from a French property, it is always liable to French income tax even if you are not a French resident, and even if the rent is paid to you outside of France. Indeed, if you are a UK tax resident, the rental is also liable to UK tax though you may deduct any French tax payable. Mortgage interest may be deductible.
Q23. When I die are there any taxes payable?
A. If in joint names and a community marriage contract has been signed, there’s no succession tax on death, just 1% transfer tax.
Otherwise if in joint or single name, or in an SCI, there is succession tax.
Note that any mortgages in France would reduce the asset value liable to French succession tax.
There is a Double Taxation Treaty covering Inheritance Taxes between the UK and France to avoid double taxation. The French tax can be deducted against any UK tax, but note that the French tax payable on a spouse’s death has nothing to offset against as this is tax free in the UK.
Q24. If I want to sell my property, are there any taxes payable?
A. I you want to sell your French property but you are not a French tax resident, then French capital gains tax is payable on the gain unless it has been owned for 15 years. After five years of ownership, the net gain is reduced by 10% for each subsequent complete year of ownership.
I you are a French tax resident and have used the property exclusively as your main residence, any gain is tax free.
UK capital gains tax may be payable if you are a UK tax resident and you have not elected for your French property to be your principal private residence (but this election only reduces UK tax, not French tax). Any French capital gains tax is deductible against the UK tax payable.
Q25. Can I reduce my taxes by using a mortgage even though I can afford not to borrow?
A. Mortgages can be used to reduce the exposure to French wealth and French succession taxes for non-French residents.