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Purchasing abroad

Purchase costs

Property Acquisition Tax

In France, the notary is a third party in all property transactions. He is a government officer who checks all of the documents provided by the developer and ensures a safe transfer of the ownership.

New build/complete renovation cost: 3% of the VAT inclusive purchase price

Resale/light refurbishment: 7% of the VAT inclusive purchase price

French VAT on Leasebacks

Under the leaseback scheme, where the property is used as holiday accommodation for at least 20 years and leased continuously during that time, investors are entitled to a VAT refund on the purchase price of the property. In some cases, the developer will assume the burden of reclaiming the VAT by selling the property to the investor net of VAT. Alternatively, they will sell the property at its gross price in which case the investor must claim the VAT rebate of 19.6% (VAT rate for new build) of the purchase price.

Tax policies

Income Tax on a Leaseback Scheme

As a non-resident owner of a furnished rental property in France, you will be required to have a local tax address. This can be acquired through an accountant in France, who will also manage your VAT statements and tax returns.

Your rental income will be subject to 25% tax by the French Tax Authorities. Depending on your country of residence, there may be a Tax Convention with France, thus avoiding a double taxation of revenues.

In order to decrease or cancel taxable revenue declared from your property, you are allowed to deduct interest on your mortgage (only if the mortgage is contracted through a bank in France) and you may also amortise the price of the apartment and furniture and fittings.

Amortisation as follows: The Tax Authorities will consider about 15% to 20% of the price to represent the price of land, which cannot be amortised. If you take 80% of the price of the apartment, you can then apply either 5% per annum over 20 years or 4% per annum over 25 years as amortisation of the property.

Furniture and fittings can be amortised at 10% per annum over 10 years.

The amortisation is considered as being deferrable, which means that as long as you have sufficient interest and other charges to deduct, you do not require using it.

Notary fees may also be deducted over the first 3 years. Rates which are payable annually can be deducted as well:
-One return journey from your home to your holiday property
-Accountants’ fees (about € 270 per year).

Rental income can thus be considerably decreased or even cancelled out completely by the off¬setting costs rendering your income net of tax over a long period.

Capital Gains Tax

The rate of CGT for both French and non-French residents, who are residents of an EU country, is 16% of the net gain on the property (the property has to be held for at least 5 years otherwise it is treated as income and is taxable under income tax rules). The gain can be reduced by a flat rate of 7.5% to account for the costs of acquisition (or the actual amount if higher) when calculating the CGT payable. There is also a 15% deduction for any enhancement expenditure. The 16% tax is reduced by 10% for each year of ownership after 5 years -
Therefore if the property is held for 15 years no CGT will be payable.

French Wealth Tax (L’Impôt sur la Fortune)

Non-residents of France who own assets situated in France, currently valued at over €750,000 on 1 January of the taxation year, are liable to Wealth Tax on those French assets, including the value of shares in any special purpose company which owns real estate in France, like a Société Civile Immobilière (SCI). However, loans to the individual (or the SCI) specifically attached to the French assets may be deductible against the asset value to reduce the wealth tax calculation (i.e. only the equity in the property is considered part of the taxable value). As a general rule, taxable assets are valued according to their current market value.

The wealth tax rates for 2007 are:

Inheritance Tax

The threshold has tripled from €50,000 to €150,000 per parent per child in 2007. Foreign owners of French properties will benefit from the changes whether they are resident or not, as under the country's tax rules any asset in France is taxed in the country even if its owner lives and dies overseas.

It means that a couple with three children owning a French property worth €900,000 (approximately £640,000) should be able to pass it on tax-free if each child was given an equal €150,000 share.

Inheritance tax in France varies depending on the amount above a threshold inherited and ranges from 5% at up to €7,600 to 40% above €1,700,000.

Taxe Fonciere & Tax D’Habitation

There are two property taxes in France that permit to finance local services such as lighting, street cleaning and collection of waste. These two taxes are paid on annual basis.

Taxe fonciere is the tax levied on property owners. The amount varies according to where the property is, as well as the "Valeur Locative Cadestral", or the notional rental value*. According to the area of the property, the cost varies from €10 to a maximum of €25 per square metres per year.

Tax d’habitation is paid by the occupiers of a property, regardless of whether they own or rent the property. This tax is less expensive than taxe fonciere,it varies from 0.2% to 1.5% of the rental value*.

In leaseback schemes the tax d’habitation is always paid for by the management company.

*Please note that the rental value fixed by the French government is always less than the market rental value of your property