There are few restrictions on foreign ownership of land and property, however, very careful consideration should be afforded to the method and route of ownership. The French Government imposes draconian rules relating to succession laws/forced heirship and wealth and capital gains taxes.
Buying Process
- Under French civil law, it is possible to for French properties to be purchased individually, in joint names or in the name of a real estate company, known as a Societe Civile Immobiliere (SCI). Two people are required for an SCI and we urge independent legal advice is sought regarding the matter
- You need to ensure that you will have full title to the French property on completion and the lender receives all appropriate documents
- It is possible delays may occur due to the French and Administrative system
- You should check with your French Lawyer or Estate Agent that the costs charged by Legal and Government Authorities are fully clarified. The lawyer (notaire) may also include within his charges costs for assigning the French mortgage.
- It is strongly advised independent legal advice is taken before signing the “Compromis de Vente”. This is so that any problems with Agents Immobilieres or Notaires are avoided. The bank will need a copy along with the relevant application form
Taxation Issues
- If a non-resident owns a French property then individual wealth tax is payable at a rate of 0.55% in excess of EUR 750,000 and is scalable up to 1.8%. If a French property is owned via a designated offshore jurisdiction company or a company deemed to be outside the approved territories, wealth tax is imposed at the rate of 3% per annum
- So keen are the French government to attract foreign investment into the property market that they have recently cut the amount of capital gains tax payable on the realisation of profit from the resale of property. Capital gains derived from the sale of a principal residence by tax-free and, if certain requirements are met, the capital gain realised on the sale of a secondary residence by taxpayers not owning their principal residence may be tax-free. Gains from property are treated as taxable income and are taxed at income tax rates, after deducting various allowances depending on the duration of ownership.
Succession Laws
- French laws are completely different to that of the UK and US in which people can generally leave their assets to whom they choose. With French laws, regardless of the wishes contained within a properly executed Will, the wishes can be overturned by the property heirs (Heritiers Resevtaires). Even if a foreign will exists the French rules on succession will always take precedence. Testators in France should therefore be aware that any property that they own in France will be subject to French succession laws and to Inheritance tax upon their deaths
- French succession law focuses on the concept of Bloodline, thus protecting the rights of protected heirs, which include children, grandchildren and in some cases, parents, even before the rights of the surviving spouse (a surviving spouse is a protected heir if there are no living descendents or ascendants)
- In the case of a son or daughter pre-deceasing the testator the share otherwise attributed to the deceased child will be distributed equally among the children of that deceased child. If there are no such children the share is distributed between the surviving children of the testator
- If there are no children or grandchildren, but there are surviving parents or other ascendants ie living grandparents in both the parental and maternal lines, the reserved portion equates to half of the estate. If there are ascendants in only one line, it is quarter of the estate
Ownership of Marital Property
The rights relating to marital property are complex. Under French law a marrying couple normally enter into a matrimonial contract which will affect the way their property is owned. There are two principal forms of contract
- Separation of Property (separation des biens) is a system whereby any asset registered in one spouse’s name is considered to be owned by that spouse. Any assets registered in joint names are considered to be owned equally. A couple married in most common-law countries such as the United Kingdom or the United States is considered to be married under this regime in French law in the absence of a specific marriage contract, (which does not exist under Common law). It means that on the death of one spouse, the protected heirs can make a valid claim against all the assets registered in the name of the deceased spouse; and 50 percent of the assets registered in joint names
These rules can give rise to serious issues. For example, the surviving spouse of a foreign marriage has no rights to continue living in the marital home, in France, if it is registered in the sole name of the deceased spouse. The surviving spouse of a foreign marriage has no rights to other assets registered in the name of the deceased spouse if they reside permanently in France. Instead it is the children including those of earlier marriages of the deceased spouse who have all rights
- Universal community (communaute universelle) involves all of the assets belonging to the married couple being placed in joint or community ownership. A foreign married couple can enter into such a contract and they may also choose to include a special clause (clause d’attribution integrale au conjoint suivant) which allows all the assets to pass on to the surviving spouse without the liability to French inheritance tax, thus effectively avoiding French succession law.
Recent changes to the French civil code have made it much simpler for couples married outside France to change their matrimonial regime without the legal formalities which are required for French couples. However it should be noted that a change of matrimonial regime is not effective against the rights of children previous relationships and may have adverse tax consequences for the children of the marriage concerned
Ownership Issues
There are fundamentally two ways of jointly owning French property
- Ownership en division (tenancy in common) is whereby each tenant own half or a percentage of the house, which on death is devolved according to French succession law. The protected heirs then have the rights over and above the surviving spouse against the deceased’s share. This is how most French lawyers put property into joint names in the absence of specific instructions to the contrary, although this method can create disadvantages where there are children from previous marriages of the deceased
- Ownership en tontine (similar to a joint tenancy under English law) can resolve the problems associated with ownership en division. This specific clause may only be included at the time of purchase and although rarely used in France other than by foreign couples, is perfectly legal. Under a tontine, the surviving spouse is deemed to have owned the property from inception and therefore the surviving spouse is fully protected and has complete freedom to deal with the property as he or she deems appropriate.
It should be noted however that when a property is purchased using the en tontine clause the consent of both parties is required in the event of a sale and this may give rise to problems in the event of a marital breakdown
Inheritance Tax
- It can be possible, whereby there is a large difference in the ages of the parties to the tontine, or if there are other reasons whereby one party has a reduced life expectancy, or if the parties contribute unequal shares of the purchase price, that the French tax authorities may classify the tontine as a gift and then apply taxes on the death of the first spouse
- On the death of the second spouse the children of that spouse will inherit. If they are children of both spouses they will, in effect, have lost out as they will only receive their tax-free allowances (abatement) only in the estate of the second deceased parent instead of receiving an allowance in the estate of each parent
- Unmarried couples may experience problems. The property would pass on the first death in accordance with the law on gifts to non-relatives which currently means that the survivor would pay inheritance taxes at a rate of 60% with a tax-free allowance in the estate of each parent
Investment Potential
The French government, in order to boost tourism and stimulate the economy as a whole, has looked to increase foreign interest in the French property market by creating incentives for property investors looking at opportunities in France.
One way in which the government has done this is by introducing the unique French leaseback scheme (Residence de Tourisme). This scheme allows buyers to own outright freehold property in France, purchasing it at a discount to market value and generating a guaranteed return from it whilst retaining the right to occasional personal use of the property. In essence this was created to attract investors with the promise of guaranteed rental returns, the ability to use their investment property occasionally and the benefit of achieving up to 16.4% discount to market value on property – naturally enough this scheme makes the property market in France one of the most stable and desirable from an investor’s point of view and the scheme has already seen many European, British and American investors committing to the French real estate market.
France welcome’s a huge number of tourists each year along with many retirees looking to settle in France on retirement. The steady migration movement means renovation and resell are viable strategies for making money on property. Investing in French property also immediately offers a number of options and strategies to choose from whether looking at buy to let opportunities in cities such as Paris or Orleans, accommodation suitable for student lettings and of course holiday accommodation from rural areas to the riviera to the ports connecting France with the UK.
The key to making a successful investment in France is identifying the target market and researching their requirements because everyone wants something different from property in France – for example an investor hoping to attract the family tourism market who fails to invest in property that is both affordably accessible and within easy reach of good amenities will fail to generate a decent yield.
France is a good solid, stable and consistent market, it is a safer market than many emerging nations for example, it has a constant supply of demand and the best thing is that the government welcomes investors.
Interested?
