Buying a property in France

Introduction

The transfer of property in France has wealth tax, capital gains taxes (on a sale), land taxes, and estate duty. The purchaser pays notary fees and there a tax to register the property. There are also local council annual taxes known as “taxe d'habitation” and “taxe foncière”. It is therefore important to structure an acquisition taking all these factors into account. They apply to Americans as well as all other jurisdictions, and one needs to look at the international conventions to see how they apply in each case. 

Debt

Generally speaking, it is always better to buy a property with real debt, ideally 100%. This is because it can transfer many of the points to one’s home jurisdiction. Depending on the country concerned the credit can be complicated to put in place. For this reason, we often resort to private banking to assist. This may mean an investment is required as collateral. The amount will depend on the loan to value of the assets invested, as well as the lending interest rate. It is important to establish the size of the investment needed, and the purchase size will determine the bank’s willingness to lend. Smaller files are harder to finance as banks are looking for assets in their books. Also, the buyer’s nationality will determine which bank may be willing to create a relationship with the buyer. In the current market, it is not always easy to find banks interested in collaborating on these sorts of ventures. 

Wealth tax

One should not overlook that the debt for wealth tax purposes is amortised on the period of the loan or, under certain conditions, 20 years. Debt is deductible taking the above into account and the value is assessed on the market value of the property. There is relief for occupied property and corporate owned property. Wealth tax is liable for a net value over EUR 1.3 million, and is taxed from EUR 800,000 if liable. Certain counties may have relief under their tax treaty. 

Estate duty

When buying property we often set up legal entities, and in certain circumstances the entity may be established in a European location outside France. Sometimes we use Monaco for non-European residents, as this can provide an estate duty deduction for a corporate shareholder loan account. As stated above it can also reduce the wealth tax liability. However, careful estate planning is important, and an entity can simplify a future transmission. 

The entity

There are different forms of companies. When a property is not rented, we generally use a French civil code company. If a person lives outside Europe, a Monaco entity may be used, although this creates banking complications when opening an account if a buyer does not use a bank loan with a private bank. 

If the client decides to rent furnished using a civil code company, this changes the tax regime to corporate taxation. Under these circumstances one loses the tapering relief for capital gains. In this situation we may set up a separate rental company in the form of a transparent commercial Ltd company which owns the furniture, but not a civil code company. 

It is important to prepare accounts and maintain legal records. One needs to have annual general meetings and approve the accounts, otherwise the entity is considered not to exist as it is fictitious.

Conclusion

If one is buying a property in France, careful advice is needed. At Anthony & Cie, a ‘multi-family office’, we specialise in this area and happy to help with part or all of these issues. We also provide all necessary administrative, accounting, and legal support. Please feel free to brainstorm if you have clients with any of these needs.