How to buy a property in France ?
Publié le : 01/06/2006 01 juin juin 06 2006
1) How do you find a property : real estate, notaire, your own search 2) Before signing the contract 3) A four stage procedure
A short Guide1) How do you find a property: real estate, notaire, your own search.
Properties are usually purchased through an estate agent (“agent immobilier”) or a local lawyer (“notaire”).
The agent’s commission will be between 5% and 10% of the value of the property. The amount can be negotiated
2) Before signing the contract
It is prudent to get an architect’s report on the condition of the property.
Legal audit: We strongly recommend to carry out a legal audit by lawyer (avocat or notaire)
Once you have signed the contract you will not be able to make changes.
3) A four stage procedure
As in an English property transaction, there are several stages in the process.
A bilateral contract: “compromis de vente” (the most frequent) where there is a binding agreement to buy on the part of the buyer and to sell on the part of the vendor.
Stage 1: A first binding agreement
This is similar to the exchange of contract stage under English law.
In most cases, the first contract is a bilateral contract: “compromis de vente” (the most frequent) where there is a binding agreement to buy on the part of the buyer and to sell on the part of the vendor in which you can include appropriate suspensive terms and conditions.
On signature of the contract you will generally be asked to pay a deposit of 5% to 10% of the purchase price.
You are entitled to cancel this first binding agreement within a 7 days delay after the signature.
Stage 2 : The Loan (if necessary)
A loan to purchase a property can be obtained in relation to all or part of the purchase price depending on the guarantees and/or security offered. Loans are generally for 15 years and interest rates vary between 3 % and 4 % (2005).
Stage 3: Who can purchase a property?
A property can be purchased by one individual or by several jointly or through a property based limited company (a “Société Civile Immobilière” or “SCI” for short)
Stage 4 : Deeds of conveyancing
Completion will usually take place 2 to 3 months after the contract has been signed. The transfer (“acte de vente”) will be signed in front of the notaire handling the sale. You should be represented by your own lawyer who will be able to give useful advice.
The “basic” legal fees on the transfer which come to about 1% of the price and will be shared between the two lawyers involved if you have taken independent advice, and other expenses and taxes which amount to about 5% of the price.
Reselling your property
If you make a gain when reselling your property, capital gains tax is payable in France at a rate of 16% applicable for a duration of 15 years.
If you are a French resident, this percentage will increase up to 27%.
There is a general reduction of € 1,000 + 10% reduction on the gain after the fifth year.
French law applies to real property in France and, if you are married or/and have children, they will inherit a substantial part of the property regardless of any dispositions you may have taken in a will.
If, however, you have bought the property through a SCI, you will be leaving the shares which can be disposed of under English law.
Inheritance tax will also be payable in France on real property.
The rate varies from 5% to 40% of the value of the property depending on whether it is left to a close relative (e.g. a child) or to someone outside the family.
SCI (Société Civile Immobilière)
Pros and cons
- It is a transparent company from the tax point of view. The shares are considered as movable and are subject to English law as far as the inheritance issues are concerned.
- If the acquisition is made by several persons (shareholders), the decisions will be taken by the majority of members as defined in the Articles and Memorandum of Association.
- A partial later transfer of the property is made easier by the transfer of the shares instead of the transfer of the joint ownership right, whether the transfer itself is with consideration or not.
- It is a very common system for the persons who want to acquire as a time share property.
- The necessity to have a separate accounting for the non-trading real estate company and for personal business.
- Specific annual tax statement, even if the company is not taxable considering the extent of its profits.
- More subtle management of the tax relief allowed by the regulations applicable to listed or registered historical monuments is required.
- Obligation to hold an annual general meeting.
- UK resident could face UK income tax up to a certain percentage of the market rental value of the property.
The right fiscal issues
A new UK/France double taxation convention has been signed in London on 20 January 2004.
To determine the residence for the tax purpose in France, it is essential to know
- if the person continues to dispose of any kind of residence in Great-Britain or not,
- Where does the family live?
- In which country does the person possess the greater amount of assets?
- And where will the major income be drawn from?
And also where will the person carry out his main professional occupation or where will the person fulfil his social political and associative activities?
If it is not possible to determine the tax residence with the above mentioned answers then we will look for how long the person will remain in the each of the two countries.
Slightly different that the common thought which says that you have to spend more than 183 days in France.
Means of testing of the family house
Just an example of what you could do with your French property for which French law shall apply.
It is your choice to give your property in bare ownership and you keep the beneficial ownership, or the full property.
- If you give the bare ownership, there is no transfer tax.
- If you give the full ownership, the transfer tax will be equivalent to the inheritance tax depending on your age and the amount of the donation between the rates of 0 and 50%, subject to a lot of reduction or exemptions.
In the case you own the property with your spouse and you want to avoid any concern when one of the spouses is dying, the solution could be to have, only for the property you own in France, a matrimonial property regime that is a universal community regime.
In such a regime in the event of death, all the movables and immovables shall belong to the surviving spouse. If both spouses die simultaneously, half of the value will belong to each estate.
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