Below is information on buying property in France, we hope you find it useful.
Once you have found a property that you want to buy and agreed upon a purchase price, you will be required to enter into a written agreement to block the sale. This can be done by the Estate Agent if licensed (Carte Professionnelle) to so or a notary and is called a ‘compromis de vente’ (a binding agreement to purchase). There can be specific clauses added to the compromis de vente which are called ‘clause susspensive’ for example the acceptation of a loan or planning permission. At this stage a deposit of up to 10% of the price is paid and remains in escrow in a special bank account through the Estate Agent or notary.
Once this has been signed and the deposit handed over, you have a 7 day “cooling-off period, following which the contract becomes final and legally binding (unless purchasing land). In most cases the deposit is forfeited if you decide not to proceed, unless this is justified because of non-fulfilment of one of the specific clauses stated in the preliminary contract. These clauses are known as the ‘conditions Suspensives’ and protect the buyer’s right to withdraw from contract prior to completion covering issues such as failure to obtain the necessary financing, proof of title to the property, good planning searches including the sellers statement as to the existence of any natural risks.
Provided that all the conditions of sale as noted in the “compromise de vente” have been satisfied, it is usual for completion to take place within two or three months. Upon completion the remaining monies must be forthcoming and the purchaser and vendor will be both present to sign the “acte de vente” which is done in front of the notary. Should you be unable to attend the signing, a power of Attorney may be given to the notary. In most cases vacant possession will be granted on the day of the signature. It is a legal requirement in France that all properties be insured at completion.
French Succession Laws
Taxes
Notary's Fee
Frais D'hypotheque
Capital Gains
Estate Agents Commission
Buying through a company
Advantages regarding inheritances
Advantages regarding wealth tax
Guarantee and construction insurance
"Dovage-ouvrage" insurance
Attestation de Garantie de Livraison
Local Taxes
Income Taxes
Frence Residency Criteria
How much of salary can I commit towards a mortgage?
How much will it cost me to borrow money?
How long can it take to repay the loan?
What security will be required?
Can I purchase through an "sci"?
FRENCH SUCCESSION LAWS
French inheritance law is complex and very restrictive. Given its complexity, we recommend that you seek independent advice from a suitable qualified and well served notary before completing any property deal and certainly in advance of signing the final deed (“acte authentique”). As local laws govern the property, non-residents are subject to French civil law on their real estate located in France. This is particularly important, as under French law, priority is given to children and the living parents of the deceased (protected heirs) thus insuring greater rights of inheritance than those of surviving partners. You cannot disinherit your children under this “protected heirs” rule. Two options you may wish to discuss with your notary are either the “tontine” (concept of joint ownership similar to the U.K.) or “donation entre epoux” agreements which appear to offer more recognisable or comparable inheritance protection with other counties. Obviously you should ensure that you choose the right solution to suit your individual circumstances. Your notary will undertake to complete all the formalities necessary, however the exact cost associated with the purchase of each property will vary slightly depending on the work undertaken and where the property is situated, etc. As an approximate guideline you should expect to pay the following costs called the ‘frais de mutation or frais de Notaire’. Between 6% and 7% of the agreed purchase price for properties more that 5 years old. Between 2% and 3% of the agreed purchase price for properties less than 5 years old. Traditionally these costs are payable by the purchaser. An approximate breakdown of these costs is as follows:
TAXES
Various taxes including stamp duty add up to around 6% of the purchase cost of old property, of which 4% to 5% covers departmental tax and 1% of communal tax. New properties (less than 5 years old) include VAT at a rate of 196% at the first sale instead of certain of these taxes, stamp duty amounts to 0.60% of the purchase price. This explains the reduced overall costs in addition to the stated prices.
NOTARY’S FEES
The notary’s actual fees amount to approximately 1% of the overall conveyancing costs. These fees are fixed nationally by law and will be divided between the notaries if there is more than one involved.
FRAIS D’HYPOTHEQUE
If you are obtaining a loan through a French bank to be secured by mortgage over your French property, it will need to be registered at the local Land Registry. This will incur further costs payable to the Land Registry Office (Bureau des Hypothèques) which are stipulated in the offer sent by the bank.
CAPITAL GAINS
As with Inheritance Tax, this is a much specialised area and again we suggest you clarify the position with your notary or a competent lawyer when discussing inheritance laws. However, it is important to note that capital gains from the sale of real estate held for 2 years or less (other than a principal residence) is taxable at a rate of 33%. As and from the 3rd to the 22nd year inclusive the tax is calculated as being the difference between the sale price and the inflation-adjusted purchase price (approximate reduction of 5% each year). There is total exemption from capital gains tax after 22 years. For non residents, the notary handling the transaction withholds the capital gains tax when applicable and is responsible for the calculation of the tax amount owed.
ESTATE AGENTS/NOTARY COMMISSSION
When buying a property via an estate agent, the commission taken is between 5% and 10% of the value of the property, normally included in the advertised purchase price. However, don’t be surprised to find that you and not the vendor could be asked to pay their commission. Please check this before entering into any agreement to buy. NEW BUILDS So far, we have only looked at buying fully built properties. There are however a number of developers offering condominium type properties in a building development, you are usually obliged to buy it off plan (“vente en etat future d’achevement”) i.e. before it is built. This type of purchase should not be confused with time share. Similar to developments in the U.K. each apartment is referred to a plot “lot” and you offer to buy in anticipation of the property being built to the specifications advertised on a site plan or in the literature. The preliminary contract is known as “contrat de reservation” and it is subject to a cooling off period of seven days. The contract contains the timetable for the property’s completion, payment dates etc. Staged payments are required during the construction of the property, unlike other countries where the developer would only receive a deposit and the rest of his money after the property is fully built. Payments are usually spread over 12 to 18 months. A deposit of initially 5% of the purchase price is required at the signing of the “contrat de reservation” which is usually a fixed price and inclusive of VAT. Funds are then required in stages by the builder, based upon what stage of construction the property is at, subject to confirmation that each stage has been satisfactorily completed. The three main stages are: 35% payable upon completion of foundations 35% payable rendering the property waterproof 25% payable on completion 5% retention is usually made by the purchaser against finishing off and minor defects on completion. Before entering into any agreement to buy “Off plan” we would strongly advise you to ensure that the developer or builder has a guarantee known as “GUARANTIE D’ACHEVEMENT” which protects against defaulting builders and developers before the property is completed. All developers and builders must be underwritten by a bank, or by the developer himself, providing he meets liquidity requirements.
BUYING THROUGH A COMPANY
Buying a property in France through a French non-trading property company (Societe Civile Immobliere or SCI) can be beneficial. The principal advantages of an SCI are that its shares can be simply transferred to new owners and after the company has been established for three years, stamp duty is lower than it is on direct transfers of property. On the death of an owner, shares in an SCI are treated as movable assets and can be bequeathed in accordance with the laws of the owner’s place of domicile, thus avoiding the restrictions of French succession law. If you plan to buy a property through an SCI, this should be done at the outset and all advantages and disadvantages must be considered in advance. One concern for example is that the British tax authorities consider that a taxpayer who owns shares in an SCI may be deemed to be an employee of the company and therefore receiving a taxable benefit in kind for the use of the property.
ADVANTAGES REGARDING INHERITANCE
The creation of an SCI avoids the application of the French Civil “Heir ship” rule. As a consequence of the SCI, the law of the country in which you are a resident at the time of death prevails. However, French tax law will apply and your heirs could be liable for French Inheritance Tax. From a French point of view, managing the SCI would be a solution to keep a certain control of the property. If the children are also implicated in the SCI, the surviving spouse would be able to keep a control on the property that would be inherited by the children.
ADVANTAGES REGARDING WEALTH TAX
You will be allowed a deduction of approximately 10% if the taxable value for French Wealth tax purposes as the property is not owned directly by you but through an SCI. Once you have found a plot of land make sure it is constructible by checking the local planning regulations at the local town hall (most Estate Agents will help you to do this). The planning permission is also given by the local town hall “Mairie”. When applying for a loan to build you must provide proof of land ownership or a copy of the sales agreement should you bi in the process of acquiring the land. With regard to the construction of the building, it is advisable to engage the services of a registered architect by signing a ‘contrat d’architecte’. This contract provides all necessary building services ranging from the project development, dealing with local authorities (planning permission, local authority regulations etc.), the appointment of contractors, and work supervision to the authorising of releasing stage payments. Otherwise, it is important to sign a ‘contrat de construction de maison individuelle’ with a well established builder. This contract contains legal information pertaining to the plot of land, the materials used for the structure of the building, the construction schedule, detailed plans and the guarantees and insurance cover put in place during the works and following completion.
GUARANTEES AND CONSTRUCTION INSURANCE “GARANTIE DECENNALE” – TEN YEAR GUARANTEE
For ten years from reception of the works, the contractors and advisors remain liable for any defect which affects the main structure of the building or a major element of equipment, rendering it unfit for its purpose; for example foundations, roof….etc. Should you decide to sell the property during this period you are liable to the purchaser for the same guarantee.
"DOMAGE-OUVRAGE" INSURANCE
This insurance is either included in the contract signed with the builder or taken out by the purchaser. In the case of construction defect, this pre-finances all necessary repair works until the liability of the responsible builder is invoked. From the end of the first year after reception of the construction works until the end of the tenth year, this insurance covers the full cost of all works required to repair the building and the elements of equipment.
ATTESTATION DE GARANTIE DE LIVRAISON
This insurance legally binds the builder to deliver the works in due time and at the agreed price mentioned in the contract. It also covers in the case of the builder going bankrupt during the works. Once you have found the property, signed the preliminary contract (with a withdrawal clause – “Condition Suspensive”) and paid the 10% deposit, you have 10 days to apply officially for a loan and generally 40 days to obtain a written offer from the lending institution of your choice. In order for the bank to process the loan application, you must provide proof of income and proof of savings and existing asserts. French banks in general do not permit total outgoings which include existing mortgages, rental payments and other personal loans to exceed approximately 33% of your net income. Joint purchase of the property requires joint borrowing with most lending institutions, consequently, joint income and liabilities are included when assessing the borrowing capacity for more than one borrower. Following approval of your loan, you will receive an offer letter which gives details of the terms and conditions relating to your particular loan. As with all loans, there is a statutory 11 days cooling off period required by French Law. The time scale for receiving a loan offer varies considerably from bank to bank, it is advisable to make the application as soon as possible. For the majority of mortgages, mandatory life cover must be taken out. A medical examination may be required depending on the loan amount, the age and/or state of health of the applicant(s). Otherwise, you simply fill in a medical proposal from which is forwarded with the loan application. There are several different types of loans available either fixed or variable or a “combination” of both. Generally, French mortgages are capital and interest repayment schedules. Endowment and pension-linked mortgages are available for “buy to let” properties for tax efficiency purposes. The following information is pertaining to the Crédit Immoblier De France Sud Atlantique lending policy with regards to non residents. The maximum loan to value is up to 70% of the purchase or valuation price which ever is lower but excluding the notary fees, taxes and arrangement fees. The minimum purchase price for the property is 53 000 € and the minimum loan is 50 000€. Mortgages can be obtained for a minimum of 5 years and a maximum of 30 years (subject to age of applicant) depending on the type of loan required. There are basically two local taxes you are required to pay in relation to your property. The notary will give you the relevant details as the costs relating to the property being purchased vary according to the commune in which you live.
LOCAL TAXES
“Tax fonciere” is a real estate property tax. This tax is payable even if the property is inhabited, providing it is furnished and habitable. “Taxe d’habitation” is a residential, occupancy or dwelling tax. This tax is computed on the basis of the property’s rental value. It is payable by anyone who lives in the property, whether as an owner, tenant or rent-free. It is paid annually, at the end of the year, for the residence you occupied on January 1st of each year. Payment of these taxes is usually paid in one instalment or can be paid on a monthly basis. Forms for the assessment of both taxes are sent out by local councils and must be completed and returned to the local tax centre (“Centre des Impots”) by a specific date.
INCOME TAXES
When you buy your property, you should register with the French Taxation Centre for Non Residents. You will be sent an annual tax return which can prove invaluable as a record of your assets in France should you decide to sell your property, the proceeds of which may become subject to capital gains tax. Providing no income comes from the property (i.e. you do not let out the property) your tax return will be left blank. France operates various tax treaties that have been signed with other countries, provisions under these treaties offer favourable tax treatment, particularly with regard to rental income. This income is taxed in the location country of the property. We recommend you contact a fiscal advisor regarding this matter to ensure you comply with current tax legislation. WATER Mains water in towns, villages and cities is perfectly drinkable. Water supplies are metered and bills sent once a year (in rural areas). More rural areas involve the sinking of wells which is fairly common practice. A depth of about 20 m is usually sufficient to find water. A charge is made for sinking a well. Some villas also have the ‘Canal de Provence’ which is cheaper than mains but need a filter to become drinkable. DRAINAGE There are two different forms of drainage, either mains or a septic tank. REPAIRS/RESTORATION Many properties require some work. It is not usual to use one company to deal with everything as in the U.K. it is more usual individual electricians, plumbers, etc... To be used. It is important to note that it is necessary to have a permit for certain works or repair listings done to your property. We recommend you contact the local town hall or “Maire” for information. It is also the administrative service of the town hall that issues the necessary permit licence. If you plan to live and work in France and are the holder of an E.U. passport, you no longer have to obtain a work permit. Once you have been offered a job, you should obtain a letter of employment from your employer (declaration d’engagement) and apply for a “Carte de Séjour” – a residence card. All people residing and working in France for 3 or more must apply for their residence card. Applications are made in person at the local ‘Commissariats de Police”.
FRENCE RESIDENCY CRITERIA
Under French law, individuals are resident in France if they meet any one of the following 3 criteria: 1 Family home is in France, or where there is no family home, the principal place of residence is in France. The family home is the place where the individual and his/her family gather on a habitual basis. 2 Principal place of professional activity is in France. 3 France is the centre of economic interest. In the event of residence/domicile jurisdiction disputes with other countries, the international tax treaties take precedence over domestic rules of residence. France applies on a residence-based system of income taxation, as opposed to a system based on remittances or on citizenship. Should you wish to live permanently in France without working or setting up your own business, you should apply for a visa at the French Embassy at least two months before you depart. Please check with the French Embassy as the information provided is based upon information supplied by the authorities and may be subject to change. It is also important to clarify your own circumstances with a specialist tax and/or legal advisor. HOW MUCH CAN I BORROW? Up to 80% of the purchase or valuation price which ever is lower but excluding any fees, taxes or arrangement fees. The minimum loan is 32 000 € (subject to status) and the minimum purchase price is 50 000€. These conditions may vary, please contact us for further information.
HOW MUCH OF MY SALARY CAN I COMMIT TOWARDS A MORTGAGE?
No more than 33% of your gross monthly income inclusive of any existing mortgages, rent and/or loans.
HOW MUCH WILL IT COST ME TO BORROW MONEY?
Obviously, this depends upon the interest rate at the time, the term and your individual circumstances. We suggest that you contact us directly for individual quotes.
HOW LONG CAN I TAKE TO REPAY THE LOAN?
A minimum of 5 years and up to a maximum of 30 years (subject to retirement age) depending upon the type of loan and interest rate applicable.
WHAT SECURITY WILL BE REQUIRED?
First charge over the property to the financing company.
CAN I PURCHASE THROUGH AN “SCI”?
Yes, provided that the share holders are individuals not corporate entities. The loan is granted to the SCI with the personal guarantee of each Associate. If you have any further queries and would like some advice on financing your Dream Home, please don’t hesitate to contact Gary Lovelock who is English and works in conjunction with ‘CREDIT IMMOBILIER DE FRANCE’.