It is important for British buyers to understand; and more importantly to accept, that the property, administration and taxation systems in France are very different from the systems in the UK. So for anyone not fully conversant with the French administration and law the best advice is always get good advice from either a locally based lawyer or one of the very good UK based firms such as Prettys, before, not after getting involved in any property transaction.
What follows is a brief summary of the taxes and costs that you could be subject to, and is intended as a guide to help you plan more effectively. You should note that for many of the taxes payable in France the responsibility for declaring your income etc lies entirely with you. You will need to complete a tax return ('impot sur le revenue') annually and failure to do so could render you liable to fines and surcharges and even prosecution.
Estate Agents Charges in France these are usually quoted as part of the purchase price, and as such are paid by the buyer as opposed to the seller. They are generally higher than in the UK often as high as 7% or 8%; even more in some very popular areas, so it is important to check carefully before committing to anything. It is also worth remembering that exclusive or sole agency arrangements are far less common in France and sometimes two or more agents may be involved in the sale of a single property splitting the commission between themselves so again it is best to be sure who is involved and how.
Estate agents fees are usually paid on the completion of 'Act de Vente' at the office of the Notaire and it will be the Notaire's duty to make sure these are paid direct to the agent before the transaction is completed.
Property Taxes the purchase of property in France is subject to both local and national taxation broadly similar to 'Stamp Duty' in the UK but levied at a rate which varies depending on the age of the property you are buying.
These charges; usually in the region of 7.5% of the purchase price, are also commonly quoted in the price of the property but as this is not obligatory be careful to check this out.
TVA (French Value Added Tax) is charged only on new build or property that has been built within the last 5 years. The cost is higher than in the UK and currently stands at 19.6% of the price (including the cost of the Estate Agents Commission if this has been quoted in the selling price). There are a number of schemes to mitigate the TVA element of the purchase, the most common being a Sale and Lease Back arrangement.
Should you decide to consider a 'Leaseback' arrangement be aware there are significant limitations to these deals. The most significant being that the property must stay in the lease arrangement for a minimum of 20 years other wise some or all of the tax not paid at the outset will be payable when the property's status is changed.
Notaire's Fees the 'Notaire' is employed by the state in France and it his or her job to ensure that the transaction is completed correctly and that clean title is passed from the vendor to the buyer. As such the Notaire does not represent one side or the other and it is common for a single Notaire to represent both parties. While the seller will usually recommend a Notaire to complete the transaction, you are not obliged to use the Notaire the seller suggests. If you cannot agree upon a Notaire that both parties are comfortable with, then two separate Notaires can be employed.
Be aware however that even if you employ your own separate Notaire you will still have to pay the costs of the seller's Notaire.
Fees for the Notaire are set according to a Government scale and are lower on new build than on older properties. The Notaire will be able to quote you the fee when you go to sign the initial sale agreement the Compromis deVente'.
Local Occupation Taxes there are two local taxes in France ('taxe fonciere' - fundamental tax and 'taxe d'habitation' - occupation tax) similar in principal to 'Rates' or 'Council Tax' in the UK.
The first is payable by the owner of the property and the second by the occupier although as the owner; if you have a tenant who fails to pay the 'taxe d'habitation', you will find yourself liable for that too.
Both these taxes are calculated on what the assessor considers the rental value of your property (so you are obliged to notify the local tax office of any substantial changes at the property such as the construction of an extension or a swimming pool for instance) and the tax revenues are used to fund local services such as schools, rubbish collection etc.
Because the rates for these taxes are set locally they can vary considerably from one locality to another so as part of your initial investigation it is always worth asking about the local rates of tax.
As the owner of a property in France you will become liable for the more expensive of the taxes 'taxe fonciere' as soon as you complete the purchase however because these taxes are paid annually it is likely that your vendor will have already paid the tax for part of your first year of occupation you may be asked to agree to pay this back to the vendor at the time of the signing of the sale completion document the 'Acte de Vente'.
Income tax will be payable if you derive any income in France from your property. So for instance if you let it as a holiday home then the income must be declared in France. Your annual tax declaration 'impot sur le revenu' will needs to be filed showing all the income you have received. If you are UK tax resident you will also need to declare the income as part pf your UK tax declaration and you will be subject to taxation in the UK on the income as well but you can offset tax already paid in France against any UK liability.
You should also be aware that the French tax authorities will also seek to charge you tax on your total worldwide income if they think you are effectively resident in France for tax purposes. This will be the case if the authorities think they can show that France has become your primary place of domicile, the centre for your professional activity or the principle location of your economic interest.
Should the authorities in France take this view you will need to be able to demonstrate in a robust and well documented way that it is NOT the case. This means keeping good records and accounts etc of all your income and travelling worldwide.
Capital Gains Tax if you sell your French property at a profit you may well find yourself liable to CGT both in France and in the UK. French tax on gains is lower than in the UK and is subject to a number of mitigating allowances - but you could be liable to a second charge in the UK to bring the tax to the UK level.
What you pay in France will be governed in the main by how long you have owned the property, where you are tax resident and whether or not the property is your permanent home (principle private residence).
Assuming you are a French tax resident, the property is your principle private residence and you have owned it for at least 5 years, then it should normally be free from French capital gains tax.
If it is a holiday home, then tax will be payable in France on the gain. This tax declines the longer you own the property and dwindles to zero after 22 years. The tax is highest in the first 2 years because none of the allowance that are available will have kicked in yet so be careful if you think you may be looking to sell quickly to realise a profit because much of it could go in tax.
If you are tax resident in the UK (if you spend more than 183 days in the UK the UK Government will argue that you are) then you may also be liable to pay CGT in the UK as well as in France. Because the UK and France have an agreement on the double taxation of residents, this extra tax in the UK will only be the difference (if there is any) on the tax you have already been a assessed for in France and the tax liability you would have faced in the UK had you sold the property in the UK.
Wealth Tax ('sur la fortune') is paid on the basis of the assets you hold in France (property, shares, cash etc). The threshold is assessed annually and currently stands at €760,000 with the tax rate increasing from 0.55% to 1.8% depending on the total value of your assets.
You have to pay this tax whether or not you are resident in France. You will need to make an annual declaration of the value of your assets on your 'impot sur le revenu'.
Inheritance Tax if you own property (real estate in UK law) in France; whether you are tax resident in France or not, then the situation regarding the disposition of your French assets on your death is controlled by French law not UK law.
This has significant implications for owners because it impacts on the taxation of these assets at death. The complexity of this situation is controlled by your family status and the form of ownership and marriage contract you have at the time of your death. With French tax on estates climbing as high as 60% in some circumstances making the right arrangements and decisions is crucial.
In French law your family members (children and parents) have guaranteed rights over certain percentages of your estate. It may be possible to arrange to pass property between husband and wife without tax through a partnership arrangement but this needs to be carefully considered and may not work in all circumstances particularly where there are children of a previous relationship involved.
If you a UK tax resident then you will also be liable for IHT in the UK on your French assets. This will be charged at a rate to equalise the tax you have already paid in France with the tax that you would have paid on similar assets in the UK.