Buying and Financing Property in France
France is blessed with a rich diversity that includes stunning beaches and coastline on its Mediterranean and Atlantic seaboards, spectacular mountain scenery in the Alps, Pyrenees and Massif Central, and a mainly temperate climate. For these reasons, and more, it attracts the attention of Australians and other nationalities looking to either live overseas on both a long term basis, or as a regular holiday destination.
Previously, one of the main constraints on purchasing property in France has been access to finance, with many Australian and other expatriates needing to purchase properties on a pure cash basis. Apart from the cash flow impact, this will often be tax inefficient for people renting out their properties for a large part of the year – from both a French and Australian perspective. Australian tax rules now allow you to treat offshore properties in much the same fashion as Australian domestic investment properties - with the same qualifying requirements.
With access now available to Euro loans in many situations, potential purchasers now have much greater flexibility; although the ability to borrow will vary depending on where you are buying and the type of property you are considering.
The borrowing and negotiation process can be lengthy and complex so remember to allow yourself plenty of time to view properties and locations, organize a pre-approval from a lender and obtain experienced legal advice before you buy. If you would like us to assist in arranging finance, or any other aspect of your purchase in France, please complete an Inquiry Form and we will respond promptly and courteously. In general terms you should a minimum deposit of 30% and a minimum mortgage size of €100,000 - and be aware that French banks banks place a great emphasis on an servicaability (for example, typically no more than 30% of your discretionary expenditure can be devoted to mortgage payments).
A Summary of Tax and Legal Issues
The taxation and legal issues associated with the purchase and ownership of property in France can be complicated, and below we offer only a summary of the main issues - in the expectation that purchasers will seek appropriate professional advice both in France and their country of residence prior to any purchase so that they understand the full implications of purchasing property. In that regard, we can assist in providing access to both tax and legal advice in France and Australia/UK.
Income tax applies on net rental income in France, as in many other countries. Gross rental income can be reduced by interest paid on your investment loan in addition to regular property expenses like maintenance, utility bills, property agent letting fees, etc. Any rental losses can be carried forward to offset against future rental income. Homes used for holiday purposes or only occasional or incidental rental purposes are not subject to income tax in France, but you also need to check out how tax applies in your country of residence.
French homes are subject to annual property taxes, being the Taxe Fonciere (land tax) calculated on the land size and the "tax d'habitation" an occupiers' tax based on the property dimensions itself, and including a TV license fee where the property is rented out. For a standard size land lot and home of around 3 bedrooms and one out-building, these taxes typically amount to around €180 for the land tax and €400 for the tax d'habitation, annually.
Capital gains tax currently applies at the rate of 18% flat rate, with an additional 2.3% Social Charges Levy which in essence takes the rate to 30.3%. However, if the property is owned for 5 years the taxable gain is reduced by 50% and thereafter it can be reduced by 10% for every year of ownership, meaning that after a total of 15 years no capital gains tax will apply in France. No capital gains tax applies to homes for private use.
France levies wealth taxes on property owned by non-residents,currently starting when total property and other wealth exceeds €800,000 at the rate of 0.55%. The rate increases gradually at higher thresholds up until 1.8% tax on total assets greater than €16.5million.
Inheritance taxes apply in France on specific portions of an individual's estate – generally that part of the estate left to anyone other than siblings or a spouse. Essentially the law enacts the principle you "cannot disinherit your children", with up to four children able to receive 75% of the estate tax-free, with the remaining portion tax free if left to your spouse, with taxes of between 40%-60% applying to assets distributed to anyone else.
It is important, if not essential, to obtain legal advice at the point of purchase of your French property, taking into account the impact of these inheritance and wealth tax laws. The law does recognise unmarried couples in terms of favourable treatment on death but the appropriate structure and nominations need to be made at the time any jointly held property is purchased; the structure and legal or tax impact cannot be altered retrospectively.
The French Notaire is engaged early on in the purchasing process and their role is central to facilitating the transfer of property ownership according to French law, in addition they can provide you with advice surrounding how to initially structure the purchase anticipating French inheritance tax issues.
The Notaire is usually local to the area in which you purchase and, from a French legal point of view, they officially act for both the vendor and purchaser. Depending on your particular sitaution and the amount of your investment, it may be effective to rely on the Notaire's advice and assistance during the purchasing process. However, in other cases appointing your own independent legal adviser would be highly recommended.