Category Archives: French tax

French Capital Gains Tax

Just like in the UK, if you sell property in France for more than you paid for it there is tax to pay. If the property is your main home then there is a 100% exemption (so you’ll have no French Capital Gains Tax to pay). If the property is a second home then things get more complicated.

I’ve been collecting some articles on the subject from the web. A good place to start would be the French Notaires website.

https://www.notaires.fr/en/capital-gains-tax-property-0

More from the French government here. Dealing with the specific case of what happens when there is a delay in selling what was a principal residence.

http://droit-finances.commentcamarche.net/faq/2342-delai-de-revente-de-la-residence-principale

also

https://www.frenchentree.com/french-property/french-tax/capital-gains-on-a-property-sale/

and some Brexit related comment here

https://www.frenchentree.com/brexit/what-happens-to-capital-gains-tax-after-brexit/

Rental income on second homes in France

A basic rule of life is that income is taxed. Somehow somewhere. That’s the basic rule anyway. Some people seem to manage to use the rules to their advantage but that isn’t what this brief article is about.

Apartment for sale in st Gervais

So if you have a second home in France then you rent out then you will have to pay tax on the income. It doesn’t matter if you live in France or elsewhere. The tax should be paid in France in the first instance. If you live in the EU then the double taxation rules apply. This means that if you pay less tax to the French authorities than you will have done in your home country then you should pay the difference in your home country.

  • If you get an income from a second home in France then you will need to submit a tax return in France.
  • If you live in the UK then you will need to declare the income there too (but the double taxation rules apply).

The basic rate of tax on this rental income in France is 20%. Since January 2012 there has been an attempt to collect a further 15.5% in Social Charges on rental income and Capital Gains too. This has recently been deemed illegal by the European union.

http://www.telegraph.co.uk/news/worldnews/europe/france/11468615/French-tax-on-Britons-second-homes-illegal.html

Anyone who paid this extra tax in the meantime is entitled to a refund.

There are a couple of different regimes under which you can register yourself for tax purposes in France. They are quite different and the best way forward is often not clear to the uninitiated. I would suggest that the best option is to speak to an accountant. In the Haute Savoie  we would be happy to introduce you to our English speaking contacts at SAREG they will be available for an initial consultation at their offices in Les Gets or St Pierre en Faucigny.

Can English inheritance law apply in France?

Inheritance law can be a minefield in any country and this is no less so across the EU. Matthew Cameron of AshtonKCJ Solicitors in the UK has been helping some of our clients on this topic.

So the question is. You are thinking of buying the chalet in Chamonix pictured below. In the event of your death. Who will inherit it? Under UK law it might be your spouse, under French law it might be your children. If you are after an answer then Matthew has given some insight below.

Chalet for sale in Chamonix

Succession Regulation EU 650/2012.

There has been much debate over the past couple of years about the new EU succession regulations (Regulation EU 650/2012, known as “Brussels IV”), that are due to come into force on 17 August 2015. The Regulations came out in 2012, initially to a fanfare anticipating that they could cure all of the perceived problems of cross-border succession. For it is a fact that whenever a person owns assets in another jurisdiction he or she may well be increasing the complexity of his or her legal and tax.

The background to this is that French inheritance law is substantially different from the position in the UK. For example in France there are fixed rules of succession that do not exist in England and Wales. While these are often of little concern to people buying French property, they can give rise to unintended consequences, especially when considered in conjunction with the different inheritance tax regimes that apply in the two jurisdictions.

A large portion of the work we carry out for clients when advising on French law matters relates specifically to how they may be able to structure their ownership of the French property to ensure the most suitable (or perhaps least unsuitable) method of ownership. That clients are open to discuss how their French property may pass at the time of their death is good: it confirms that they have explored this topic enough to understand that caution must be exercised from the very outset to be sure all is well understood.

And so for the last year or so many of our clients have been asking whether it is now just suitable to invoke the new Regulations, electing to apply English law to their estate in France. We shall now have a brief look at the implications of the new rules, with a view to establishing our take on the current position.

It is important to note that the UK has not ratified the relevant Regulation, and is not therefore a party to it. It is generally accepted, though, that this will not prevent a British national from choosing to apply English law to his estate in France, should he so wish. This absence of ratification by the UK should only impact non-UK nationals, who will not be able to apply the law of their nationality to any estate they have in the UK; as such that does not concern us here.

But what will happen in France, when a British national dies leaving assets there? Some commentators have, before now, suggested that these new rules would cover all main concerns that may otherwise arise on death. Yet it is not clear that this is necessarily the case. A number of concerns still remain to be answered.

What is apparent is that a British national should be able to apply the law of their nationality to their estate in France. An important (but perhaps confusing) distinction is to be made here. The law of nationality for a British person is not always the same: there are differences, for example, between the law of England and Wales on the one hand, and of Scotland on the other. Indeed, while I am unable to comment in detail on Scottish law, being a solicitor in England and Wales, I am aware that Scotland has inheritance rules that include fixed rights of succession. Scottish-born British nationals should therefore take extra care.

What is comprised in their estate in France depends upon factors such as where they were living at the time of their death: if they were UK resident, then the French estate would only comprise the French house; if French resident, then it would comprise all of their estate.

Article 21 of the Regulations state that the law to be applied to a person’s succession is the law of the state of habitual residence prior to death. This can, though, be changed, in accordance with Article 22. The effect of this could therefore be that a person is able for example to elect to apply English inheritance rules to manage the estate in France. An election should be expressly confirmed in a Will. As an illustration of this, if for some specific reason a person wanted to ensure that his house in France would pass to two only of his three children, then choosing to apply English law to override the French fixed rules of succession could well help here (although there are instances under English law where the disinherited child may challenge that, so again care must be taken).

It is not, though, the panacea that some people may initially have thought. For one thing, it is only the rules of succession that change: the taxation status remains the same. That is to say that French inheritance tax rules will still apply to the devolution of any French estate. Thus while a person would be able to invoke English law to pass his house in France to an unmarried partner or to a step-child rather than to his own children, that legacy would attract inheritance tax at 60%. French inheritance tax rates vary depending on the proximity between the deceased and beneficiary, so a legacy to a ‘natural’ child would attract far less tax than a legacy to a step-child. Similarly a legacy to a surviving spouse would be exempt from tax, but anything left to an unmarried partner (or partner not subject to a Civil Partnership Agreement or a pacte civil de solidarité) would be treated as a gift to a stranger in blood and therefore taxed at 60%.

On a slightly more complex level, it is also not yet clear what exactly will be involved in choosing to apply English law to administration of the succession: is it just a case of understanding that we can effectively elect to leave our estate to anybody, without necessarily having to defer to the fixed rules of the réserve héréditaire? Or is the testator, in electing English law in his Will, also imposing upon the notaire administering the French estate an obligation to declare that everything is to be held on trust, by executors, until the succession is wound up? France does not recognise trusts as valid property holding vehicles, although it does require that any trust with a link to France must be registered. I am not sure that many notaires will relish the thought of referring to the Administration of Estates Act 1925 and other English legislation on trusts and trustees to understand how to administer a French succession.

In summary, much remains to be clarified. I was able to discuss all of this with a notaire recently, and we agreed that in all probability the answers will not all come out until they have been tested in the court, with a judge clarifying any concerns. That would require a challenge being brought to the administration of the estate of a deceased person who had elected to apply English law in France. It is reasonable to anticipate that such a challenge would arise, yet how it would be managed is another question: presumably it would have to go through the French court system, up to the highest level (the Cour de Cassation), and on to the European Court of Justice.
Those answers may be some way off yet.

In saying that, there are still instances where it is certainly worth trying to apply English law to an estate in France, and we have already advised many clients accordingly. However, before that choice is made, it is in reality imperative to make a detailed analysis of the situation. Frequently there will be perfectly suitable French estate planning structures already in existence, and that we know will work. If that is the case, we tend to recommend these first.

Further information can be obtained by contacting Matthew the AshtonKCJ webpage http://www.ashtonkcj.co.uk/legal-services/services-for-individuals/french-legal-services/

Claiming back VAT on a French property purchase

If you are thinking of buying a French property, be that a hotel, chalet or even an apartment, your French estate agent might have tempted you with the fact that it might be possible to reclaim VAT (TVA in France) from the purchase cost. With TVA at 20% that can be a sizable reduction on the purchase cost and a very tempting idea. When our customers express an interest in this we tend to refer them to the accountants we work with, SAREG in Les Gets. The reason we do this it because for a purchaser from outside of France it can be a difficult process. SAREG have provided us with a help sheet on the subject, which I have summarised here.

off plan chalet in France

TVA is levied on French property in the following cases.

 

  1. If the property is being built new (off-plan) by a developer.
  2. If the property is less than 5 years old AND you are purchasing the property from an individual who is subject to TVA

So if TVA is paid on the purchase of the property you may then be able to claim it back but only if you prove the property will be used as a Hotel type business. Self-catering businesses do not count. Of the following 4 services, the new business must provide 3, they should be included in the price and not offered as an “option”.

  1. A guest reception, on site or nearby.
  2. Breakfast
  3. Provision of and cleaning of linen
  4. Room cleaning at least 3 times a week

If you or your business do not provide these services directly then they can be contracted out. This provision will have to continue for 20 years otherwise a proportion of the TVA will need to be repaid. As an example, if you sold after 10 years you would have to repay 50% of the TVA.

So it is likely a purchaser using this scheme will either be an established business in France already providing hotel type services (para-hôtellerie), or will sign a contract with an established business (so a ski company that provides catered holidays).

If you would like to discuss this further we would be happy to introduce you to our English speaking contacts at SAREG for an initial consultation at their offices in Les Gets or St Pierre en Faucigny.

 

Good reasons to buy in the Alps

The first one is in The Times, it’s topical as it features Vallorcine (see Chalet Regards above) in it’s article “Where to ski this winter”. Here is a link to the article, and a little image too.

http://www.thetimes.co.uk/tto/travel/holidays/wintersports/article3885982.ece

The Telegraph has the “Worlds best ski runs”, the Haute Savoie gets one, the Swiss Wall in Champery, though they claim it’s in Avoriaz, France, doh!

http://www.telegraph.co.uk/travel/snowandski/features/10356840/The-worlds-best-ski-runs.html

and the best family ski resorts, Avoriaz again and Flaine.

http://www.telegraph.co.uk/travel/snowandski/10339051/The-best-family-ski-resorts.html

The Guardian went left-field with an article by Andrew Gilchrist, very engaging too with loads of comments.

http://www.theguardian.com/travel/2013/oct/04/italian-dolomites-ski-snowboard-safari

French Capital Gains Tax changes announced

The last update I published on Capital Gains Tax in France was last summer, you can see what I said here “FRENCH CGT” , François Hollande has recently been interviewed on the French TV channel M6 and one of the subjects he spoke about was some upcoming changes to these tax rules. He said that the French government intended to reduce the time taken for this tax liability to reduce to zero from the current 30 years to 22 years.  In fact 22 years was the “old” length of time that was in place before the rules were changed last year. This is in response to the fact that property transactions declined significantly across France in 2012 and they look to be down in 2013 too. Here is a link to the story in French at Le Figaro

This is good news and will reduce the tax liability for people selling their French properties.

In other news….we’ve just taken on a lovely new chalet in Beaufort near Albertville.

Chalet for sale in Beaufort

I first mentioned this village at the end of last summer after making a visit with my family. I wrote about it here. It’s a lovely place and I’m pleased we are spreading in that direction. This property is 1km from the centre of town, has 3 bedrooms and is good value at 395 000 €. Click on the picture above for more information. Some more pictures below: