Why buy property in France?
- France is a stable democracy with an important economy based on industry, finance, fashion, tourism and leisure.
- Its natural beauty, culture and food are an attraction for tourists resulting in it being the most visited country in the world (2016)
- There are no restrictions on property ownership and France has treaties with most countries meaning tourist visas are not required (note Chinese visitors must apply for a visa).
What is the procedure for buying a property?
- When a suitable property has been found and an offer accepted both buyer and seller enter into a Buying Contract (Compromis de Vente). Upon signature the vendor is committed to the sale but the buyer has a 7 day “cooling-off” period, after which both sides are bound to the sale and the deposit (generally 10%) is paid to the notary and held in an escrow account. A target date for completion (Acte de Vente) is set.
- The notary carries out the various searches including Land Registry rights to ownership, boundaries and similar. These do not include any private planning permissions that may be in existence close to your house so it is a good idea to visit the Mairie to find out if these exist.
- After between 8-12 weeks you should be in a position to sign the Acte de Vente. If you cannot attend in person then you should have signed beforehand a power of attorney for the notary’s clerk to sign on your behalf. The balance of the purchase price is payable via the notary and the buyer becomes responsible for the insurance of the property.
What are the various fees payable?
- The transaction costs depend on the age of the property. Total conveyancing fees and taxes for an existing (resale) property are between 7-8%, excluding estate agency fees. For a new build you will pay around 2% comprising a reduced stamp duty (0.7%). In both case the actual notary fee will be on average 1%.
- For new builds VAT at 20% is normally included in the price of the property (TTC – Toutes Taxes Comprises).
- This VAT can be claimed back for a Lease Back development.
- Allow 1.5% to 2% for the registration of the mortgage, if required.
Can I obtain a mortgage from a French bank?
- Most banks will lend you 70-80% of the value of your property, depending on your income and whether you will be renting out the property.
- Loans can be anywhere between 5-25 years in duration though most lenders will not agree to a duration extending beyond the borrower’s 70th Birthday.
- Proof of income is required and if you are self-employed you will have to provide a minimum two years’ of accounts.
- Life assurance cover is compulsory.
- At the time of writing (Autumn 2017) variable rates of around 1.4% and 25-year fixed rates of 2.7% were available for non-resident buyers.
- We can help you find a suitable lender and product through our preferred mortgage broker.
Will I be subject to property taxes?
- Property Taxes: There are two local property taxes in France which are both based on the property’s theoretical rental value according to the local land registry, and is adjusted in line with inflation. The rates of tax will vary from region to region due to the varying rates of tax imposed by the regional and local governments. These are:
- Taxe d’Habitation: The occupier of the French property is liable for this tax. It is due of the 1st January and is payable by the person who was the occupier at that date.
- Taxe Fonciere: The owner of a French property is usually liable for this tax, also known as ‘impôt foncier’, a land tax which is generally payable in one lump sum on the 1st January in each year. Unlike the taxe d’habitation, apportionment can be made between the buyer and seller. If there is an apportionment this should be stated in the contract for sale. There is a two year exemption for new build property.
Other taxes on ownership
- Income Tax: The income derived on property in France should be declared in France. Once a property is rented out it will become necessary to file a French tax return (impôt sur le revenu). This Annual Tax Declaration is mandatory and must give the tax authorities complete information concerning the taxpayer’s identity and their marital and family situation, as well as the rental value of the property and/or of their income from French sources. Taxpayers not domiciled in France benefit from special deadlines for filing this tax return — for Europe this is 30th of April. Certain allowances are deductible e.g. interest payable on a local mortgage, repairs and maintenance, certain real estate taxes, management expenses such as concierge and security, etc. French income tax is payable by non-residents at progressive rates with a minimum of 25%. Rental income should also be declared in the country of your domicile for tax purposes but the French income tax paid in France is taken into account.
- Wealth Tax: payable by non-residents on the basis of their assets situated in France according to a progressive rate from 0.55% to 1.8%. The tax applies to net assets therefore if you have a mortgage on the property the tax applies only to the equity in the property.
- Capital Gains Tax: Capital gains realised on the sale of real property held for more than two years benefit from more favourable treatment and capital gains. Sales of a principal private residence benefit from a complete exemption. If you sell a property which is not your primary residence after two years, then an inflationary allowance of 5% per year is taken into consideration when calculating the capital gains tax you are liable to pay. You are totally exempt to pay capital gains tax on an asset if the disposed asset is held for 22 years or more (i.e. 2 years with no inflationary allowance plus 20 years at 5% per year inflationary allowance, yielding a 100% allowance).
- Generally, Capital Gains Tax is payable by second or holiday home owners when the property is sold unless you have owned the property for 22 years or longer. Calculating whether there has been a capital gain involves deducting the purchase price plus 10% from the sale proceeds, less agents commission and legal costs. It is also possible to deduct the costs of renovating your French property provided you have kept proper receipts which must include VAT. The longer you have owned your French property the less you pay until you reach 22 years where it dwindles to nil. There are exceptions such as pressing family reasons – e.g. death. If your French property becomes your permanent home CGT will not be payable after 5 years of residence for at least 8 months in each year. Under the double tax treaty with France, if you are tax resident in a country that has entered into such an agreement with France, the agreement allows you to credit any capital gains tax paid in France against any capital gains tax payable in your tax domiciled country.
- Inheritance tax: This can be complicated and we recommend you seek guidance from your lawyer or financial advisor. The form of ownership you choose will have an impact on inheritance in the future, for example sole ownership, joint ownership (particularly if you are not married) or through a company (SCI – Societe Civil Immobilier).
The information herein has been provided in good faith as a guide. APS would like to acknowledge the work done by Properties In Europe in providing this information. However, regulations, tax rates and exemptions may change. APS accepts no responsibility for its accuracy and buyers should always consult the lawyer handling the purchase for clarification and guidance.