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French Real Estate
French Real Estate, like real estate anywhere, has a number of facets, of which three are key: financial, legal and taxation. When considering any or all of them, it’s perhaps worth keeping in mind an economic background that in certain respects is very different from Britain’s.
When looking for a property, there are a number of ways of going about it - using the findapropertyinfrance website is arguably the most efficient and productive - but one thing is certain: make sure you take an on-the-spot look at what you think you want to buy. It’s worth remembering that the details about a French property are very likely to be less detailed than British buyers would expect about British property, eg room measurements, special features, etc. It is therefore a good idea to look closely at as many pictures as possible of any given property in order to narrow your choice down in advance of visiting - you might otherwise make a wasted trip.
Costs
How much is it likely to cost you to go through the process of buying a property in France? The key cost elements are usually:
- Notary
- Survey
- Legal
- Commission (if you use an estate agent)
- Currency
- Location visit(s)
- Mortgage
- VAT (on properties under 5 years old)
Notary: dependent on age of property; under 5 years old, 2%-4% of purchase price; over 5 years old, 6%-8% of purchase price (sliding scale). [[In addition to his fees, the notary will add in a number of duties and fees, such as stamp duties, land registry fees, taxes and disbursements, which vary with the type, age, value and location of the property.
[[Legal: In general, covered by the notary, although new properties and purchases with a mortgage loan can trigger an additional percentage.]]
Survey: a survey is only obligatory if the property is worth more than ˆ762,000. A survey is also required if you pay in cash. Expect the cost to be between 0.3% and 1% (varies with type of property, the expert’s opinion of himself, etc)
Commission: 5% of purchase price; potentially less if property is expensive. In France itself, the price of a property normally incorporates the estate agent’s commission.
Currency: 1% of total (try to change all at once to benefit from fixed charges). Fix the exchange rate at the start of the purchasing process to avoid exchange rate extras due to fluctuations before completion.
Location visit: depends on travel mode; even cheap carrier air fares can vary dramatically.
Mortgage: if you take one out in France, you will have to pay the notary between 1% and 3% of its value to cover land registration.
VAT: known as TVA in France, VAT is only charged if the property is less than 5 years old and being sold for the first time (however, if you lease* back the property to the developer without delay and he in turn rents it to holiday makers for 9 years, it is exempt).
Looked at in the round, your total costs are likely to be in the region of 10% of the property purchase price, although this is a figure that can be very misleading: the cheaper the property, the more the costs are likely to be.
Note that the buyer must always pay the notary’s fees, whereas the agent’s commission might in certain cases be paid by the vendor. Sometimes two notaries are appointed - buyer’s and vendor’s - but this does not affect the fee, which is simply split between the two.
If you are purchasing a property whose construction has not yet been completed, conveyance is preceded by another contract (‘contrat de reservation’). When signed, the buyer has to pay the developer a non-interest-bearing deposit (‘reservation’) of up to 5% if building is completed within one year, or 2% if it is within two years.
Since some British estate agents operating in France have been found to avoid paying tax to the French revenue by making their commissions payable in the UK, French notaries now refuse to handle the commissions of such agents.
Legal matters
France’s succession law can create problems; this stipulates that in the event of the death of the owner, the property is divided equally between the surviving spouse and any children. To avoid having to sell the property to make this possible, in certain cases it is common to set up a property-holding company, making it a simple matter of redistributing the shares. It can cost between £1000 and £3500 to set up such a company or SCI (societe civile d’immobiliere), which will also require the submission of annual accounts. However, in addition to offering the flexibility of share ownership, the SCI can also have a number of tax advantages. In addition it is advisable to use an SCI if you are buying into a property with multiple owners.
Residential properties are usually purchased as freehold. If you’re buying an apartment, you will share the freehold of the building with the other apartment owners, while the freehold in your own apartment is exclusive to you. Such arrangements can also apply to the purchase of land. Naturally you will pay the appropriate portion of maintenance and
* Leaseback arrangements are concentrated in popular tourist areas and only available if the property is up to the standard specified by the local authority.
any service charges. All these co-ownership obligations are set out in an agreement you will have to sign up to upon purchase. If you want to buy an apartment to let, check carefully that this is in fact allowed under the agreement.
In addition to outright purchase, there are two procedures unique to France; these are:
- ‘location accession’ (‘rent ownership’); [[this requires the purchaser to rent the property for a certain number of years, paying additional contributions towards the purchase itself, while any remaining balance is paid at the end of the rental period.]]
- ‘rente viagiere’ (‘life annuity’); the purchaser initially pays the owner 20% to 30% of the price, followed by a monthly amount until the death of the owner, when the property becomes the purchaser’s. The owner/vendor may live in the property as long as he likes.
Property in France is purchased subject to contract. A formal commitment to purchase is made early in the process, accompanied by the buyer’s deposit, a financial guarantee and professional liability insurance; the documentation stipulates date of completion - normally about two months. All payments are made in the first instance to the notary.
Seven days’ cooling off is allowed after receipt of the contract, during which the buyer may withdraw without liability. After that date the deposit is no longer returnable and other financial penalties may be imposed. Some contracts contain other kinds of get-out clauses.
Completion is effected when the final deed is signed at the notary’s office, although many foreign buyers use a power of attorney, a member of the notary’s staff being appointed to sign on the buyer’s behalf. Registration of the title deed can take six months. A certified copy is then sent to the notary by the land registry, which keeps the original - the only evidence of ownership, since title deeds do not exist in France. However, the notary can supply the new owner with a declaration confirming ownership.
Purchasing land and with a building on it that is still under construction involves a more complex process about which further advice should be sought.
Tax
Even if they are not resident, foreign owners of French homes can be liable to a range of taxes in addition to what will have been paid to the notary on purchase. However, an Anglo-French double tax treaty prevents most British nationals with homes in France from paying tax twice. If you intend to move permanently to France you should tell the British tax authorities before you leave, giving them proof of any new employment and property details. Tax offices in both Britain and France must be informed about any annual income in France. In France taxes should be paid a year in arrears for the tax year in question (January 1 to December 31) and is taken up to three years in arrears after the due date. Payments can be in three or ten instalments. Self-assessment is obligatory and the forms can be obtained from your local tax office.
Income tax (known as ‘IRPP’ or ‘impot sur le revenu des personnes physiques’) depends on your level of income. In addition to taxation of earned and unearned income, gross rental income, too, is taxed.
Property tax consists of what are in effect two local taxes. Whether or not resident in France, the owner pays an ownership tax, while the occupiers, whether owners or not, pay a residential tax. Both are paid in the year following the rental period. Certain residents may be exempt, ie the retired, or people owning new houses or uninhabitable ones.
Wealth tax Net assets held in France and valued above a particular level are subject to a wealth tax. This can be minimised if you use an SCI (see above).
Capital gains tax Subject to a number of allowances, capital gains tax is only levied on properties other than your principal home, as well as on shares.
Inheritance tax in France is very different from the British concept. For instance, beneficiaries pay a percentage depending on how closely they are related. It is advisable to seek expert advice.
VAT: Known in France as TVA, this tax can have an impact on your plans and finances best sorted out by consulting an expert.
In addition to the taxes outlined above, there are a number of social charges on income and capital gains declared in France.
Find a Property in France is not responsible for the accuracy or otherwise of the information in this article. Anybody intending to buy a property in France should seek the appropriate professional advice.
A Beginner’s Dictionary
Town hall: mairie
Mortgage: hypotheque
Income tax: impot sur le revenue des personnes physiques (IRPP)
Capital gains tax: impot sur les plus-values
Wealth tax: impot de solidarite sur la fortune
Tax return form: declaration des revenues
Property ownership tax: taxe fonciere
Residential tax (paid by occupiers): taxe d’habitation
Planning permission: certificate d’urbanisme
Building permit: permis de construire
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