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Expert Advice: All You Need to Know About French Property Purchase Structuring

Property Purchase

There is an enormous variety of attractive properties in France from ancient to modern, in a country, coastal or mountain location. The purchasing process is reasonably straightforward with expert assistance to avoid common pitfalls.

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The Contract to Purchase

Having found a suitable property to purchase the buyer and the seller either independently instruct their own notary or jointly instruct one notary to act.

The buyer may be asked to make a formal written offer to the seller. However, the buyer must take care and would be wise to seek legal advice at this stage.

The notary prepares the contract and the parties usually meet to sign the contract after acceptance of the buyer’s offer. On signature the buyer is obliged to pay the deposit, usually 10% of the purchase price, though 5% might be accepted by some sellers. The deposit will be held by the notary until completion.

As the contract is signed early in the transaction, it usually includes several conditions precedent that if unfulfilled allow the buyer to withdraw within a fixed period and the deposit will be returned. The sale could be subject to, for example, the buyer obtaining suitable financing or obtaining confirmation of the regularity of the building.

The consumer protection legislation imposes a short “cooling off” period to permit the buyer to withdraw and recover the deposit should he change his mind.

The contract will provide a date for completion, usually three months later, to allow the notary sufficient time to complete necessary searches and enquiries. The contract will normally include a power of substitution, thus the identity of the buyer may be changed from an individual to an entity, depending on the structure the buyer wishes to put in place.

 

Surveyor’s Report and Compulsory Reports

In France most buyers do not obtain a surveyor’s report; however, we would recommend that a surveyor familiar with French properties be instructed to report on both the structure and, if required, planning issues.

The seller is obliged to provide the buyer with various technical reports (including the presence of any lead and asbestos, its energy efficiency, zone of natural risk).

Structuring the Purchase

A property can be directly owned but there are French tax and succession law issues that may make ownership through a company preferable. The use of a property owning company called an SCI (“société civile immobilière”) can be advantageous. For further information on this topic, please see our SCIs France and Monaco flyer.

While it is possible for foreign companies to own property certain companies are subject to an annual tax of 3% of the current market value of the property.

Tax Considerations 

Annual Wealth Tax – If the net value of an individuals’ assets located in France is in excess of €1,300,000 at 1  they may fall within the scope of wealth tax, even if they are non-French tax residents.

wealth tax is calculated at the following wealth tax rates:

taxable wealth rates

 

Gift and Inheritance Tax – The rate of tax will be determined by the relationship of the recipient to the donor e.g. spouse, child etc. and is payable by the recipient. After deduction of limited reliefs, the rate of tax ranges from 5% up to 60% where there is no family relationship; unmarried couples will fall into this category.

French Succession Issues

Buyers from a common law jurisdiction need to be aware of the significant difference between the succession law in their “home” jurisdiction and French civil law. The law reserves a substantial part of an estate (“réserve héréditaire”) to a defined class of beneficiaries; the rules are often referred to as forced heirship rules.

Under these laws children enjoy priority over the surviving spouse, so, for example, a couple with two children can freely dispose of only one third of the estate, with the remaining two thirds reserved to the children. This can result in inadequate provision and possible hardship for the surviving spouse.

The potential problem can be addressed through various techniques, depending on the personal circumstances of the individual and the family.

Completion

The completion will take place at the notary’s offices with the execution of the formal purchase deed and payment of the balance of the purchase price. The notary will register the new owner and any mortgage will be registered against the title. The setting up of any loan will need to be done carefully to secure any tax advantages.

 

 

Taxes and Cost of Purchase

On purchase the buyer will be obliged to pay the notary’s fixed fee, plus land registration and related fees, which generally total approximately 7% of the value of the property. The fees and costs will differ if the property is a new build.

 

There are two annual local taxes on the property: the taxe fonciere (property tax) and taxe d’habitation (dwelling tax) payable respectively by whoever is the owner and occupier on 1 January each year.

Property Sale

When structuring a property purchase, one has to consider the Capital Gains Tax upon resale. Indeed the tax to be paid will vary depending on the structure chosen.

We notice more and more share sale transactions agreed between the sellers and purchasers rather than property transfers. We draw to your attention that this implies a different legal process and tax consequences.

For more information on these aspects please ask for our Capital Gains Tax flyer.

If you would like to discuss this brief summary in more detail, please contact us.

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www.rosemont.mc  

Le Monte Carlo Sun 74, Boulevard d’Italie MC 98000 Monaco

Tel. +377 97 77 46 00

Fax. +377 97 77 46 10

e-mail: [email protected]

About the author

Rosemont Consulting

Rosemont Consulting

Rosemont Consulting SARL provides a full family office service to individuals and their families. We assist our clients in structuring and administering their assets in a tax efficient way complying with international regulations.

We provide tax and estate planning including personal, corporate, local and international tax planning and assist our clients to optimize their tax strategy and accompany them in their choice of tax structuring.
We help our client with considering the various tax residence options and are also able to assist them with pre-move planning, structuring ownership of assets and residence and visa applications.

Our company is specialized in real estate ownership & management: we advise on the implications and structuring for the ownership of property, and assist our clients with the coordination of parties during a property purchase, give advice at the pre-contract and contract stages on all issues related to the purchase such as building authorizations, rights of access, certificates of conformity, building guarantee.

We help coordinate the related tax and estate planning issues, including choice of ownership vehicles and the structuring of financing. This may include organizing for directors of the entity holding the property and dealing with the administrative, tax, legal and accounting aspects of owning real estate and running a property holding company.

Our qualified and practiced team has experience in international estate planning structuring using both civil law and common law structures and specificities. We can help you to determine the appropriate marital contract, the applicable inheritance law, and choose the most advantageous tax regime, so that you can protect and transfer your assets according to your wishes.