There are no restrictions to foreign property ownership in France although the buying process in France differs from many European countries and is notable for the length of time it takes to complete - so some patience may be required. It is also highly advisable that you hire a lawyer with good local knowledge to guide you through the intricacies of the purchase process. Once you have selected the property you wish to purchase and agreed a price with the seller, you will be required to sign a preliminary contract (compromis de vente). In the North, this usually takes the form of an option (promesse unilatarale de vente) with a 5% to 10% penalty if the option is not exercised – this is usually secured by a deposit which is held by the notary (notaire). If the seller withdraws, the buyer cannot sue for specific performance but only for damages (unless the option has actually been exercised). To be valid, the option must either be notarised or registered within ten days. In the South, a sale and purchase agreement (promesse synallagmatique de vente) is more widely employed. This is an agreement which allows the other party to sue for specific performance if the other defaults.
Next, there is a 7 day ‘cooling off’ period in which the buyer may change their mind. It would be wise to instruct a structural survey during this time. If you are applying for a mortgage then the compromise de vente must contain a clause confirming that mortgage financing is being sought. This way, if the mortgage is declined, the buyer will not lose his deposit. Once the preliminary contract has been signed by both parties, a number of pre-completion searches will need to be conducted which include: land registry searches, local authority searches, planning permission searches, etc. If the dwelling has been sold by a ‘property professional’ or is less than ten years old, the seller has a statutory liability to all future owners within the ten year period for defects.
Once this stage has been completed satisfactorily, both parties will sign the final contract (Acte de vente) at the notary’s office. The notary will ensure that the balance of the purchase is paid after which the deeds will be passed to the buyer. It is worth noting that the entire process, including registration of the property, takes an average of 193 days in France.
The services of a notaire are mandatory in France and their fees will be around 1% of the property price. Other costs involved are; registrations fees of around 6%, lawyer’s fees of between 4% and 8% approximately (depending on whether the property is new or not), VAT which is set at 19.6% of purchase price on the first sale within five years of building completion (plus £93 [€125] or a reduced registry fee of 0.715% for properties which are off- plan), and Transfer Tax which is around 7.5% or 1% for new properties.
Income Tax
For rentals, the net income received by a non-resident is subject to a minimum income tax rate of 25% unless the taxpayer can prove that, if they had been resident in France, their effective rates of taxation (on their worldwide income) would have been lower than 25% (which is unlikely). This rate applies to both furnished and unfurnished rentals. The decision of whether to let furnished or unfurnished is important because it has implications for taxation (primarily concerning the deductions allowed) as well as the tenant’s rights in relation to the landlord. It is usually best to opt for ‘furnished’ unless you have high deductible expenses, assuming that local ‘professional’ taxes are not too high.
Furnished property, which includes bed and breakfasts and gites (self-catering holiday cottages), is taxed under the business profits heading of income tax (but not as corporate income). If the gross furnished rental income is less than £56,462 (€76,300) per annum, a flat 72% can be deducted to cover all expenses and claimable deductions and then the balance (i.e., 28%) will be taxed at the prevailing rate i.e. taxed at 25% of income (meaning gross rental income is taxed at 7% effectively).
There is then the issue of whether one is taxed as a ‘professional’ or ‘non-professional’ landlord. Some areas of France levy the ‘professional’ tax, which is similar to English business rates, on landlords of furnished premises using the Land Registry property values which can be expensive. Unfurnished lettings are taxed under income tax as ‘real property income’. In calculating income, deductions can include repairs, maintenance, and improvements (excluding construction), local taxes, employee costs, mortgage interest expenses, and 14% of the gross annual income (to cover management fees, depreciation allowances, and insurance costs). If revenues are less than £11,100 (€15,000), this 14% deduction is increased to 40%. Tax losses can be set against all personal income up to £7,918 (€10,700).
Rentals which meet the specification of various tax-incentive schemes can avail of special deductions (a profession of special advisors has grown up around this subject, called ‘défiscalisation’). Non-residents must file the non-resident's tax return between late April and late June; the due date depends on the country of residence.
Capital Gains Tax
Following the introduction of new rules in 2004, EU residents (and residents of France) now pay 16% on the net gain (after inflation relief, deduction of acquisition, and improvement costs). The default deductions under these two headings are 7.5% and 15% respectively although, if invoices can be produced, more may be permitted. For both residents and non-residents, discounts of 10% a year are allowed after the fifth year of ownership meaning that after 15 years no gain is taxed. Properties which have been used as a principal residence from the date of purchase are also exempt from CGT.
French residents pay an extra 11% over and above the CGT in French National Insurance, making their effective CGT rate 27%. Old age pensioners and invalids, even if non-resident, are exempt from CGT. Property owners who are not residents of an EU country, however, pay CGT at a rate of 33.3% subject to any applicable double tax treaty.
Property Tax
There are two types of property taxes in France; taxe d'habitation and the taxe foncière. Whoever actually resides in a building is obliged to pay the tax d'habitation. Generally, rental leases also provide that the tenant will reimburse the landlord for the taxe foncière, which is otherwise payable by the owner of the property. The tax foncière is a combination of tax for the building and for the land; it varies considerably depending on location.
France is a semi-presidential democratic republic whereby the President is head of state who, in turn, appoints the Prime Minister as head of the government in a multi-party system. Executive power is exercised by the government where as legislative power is vested in the government, the Senate, and National Assembly.
France adopted the Euro in place of the French franc in 1999. The introduction of the Euro as a single currency within the EU has brought with it the benefits of macroeconomic stability. The decreased exchange-rate risk encourages lower interest rates whilst the European Central Bank has helped to lower inflation. The Stability and Growth Pact introduced in 1997 also seeks to ensure a stable currency, although this has been heavily criticised with the more influential members of the EU not always respecting its provisions. The UK, Denmark, and Sweden are the only EU members to remain outside the European Monetary Union, having each negotiated ‘opt-out’ clauses under the Maastricht Treaty, and it remains unclear at what point these countries will adopt the Euro.
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