Anglo French Real Estate Immobilier

French law is complex and every effort has been made to offer information that is current, correct and clearly expressed.
The information in this summary is intended to be no more than a general overview of the position and certain details have been deliberately omitted. The contents of this page should not be taken as an authoritative statement of French law and practice. Neither the author nor the publisher are responsible for the results of actions taken on the basis of information contained in this summary, nor for any errors or omissions.
This text is not intended to render legal, accounting or tax advice. Readers are encouraged to seek professional advice concerning specific matters before making any decision.
Once you have agreed the purchase price, through Overseas Properties, there are various papers and authorisations, which will be required before entering into the formal sale agreement. The notaire will also be able to give you advice on whether to purchase using an S.C.I. A pre-sale contract can be either a "compromis de vente" or a "promesse de vente". These are explained below.

• Compromis de Vente
• Promesse de Vente
• Loi relative a la solidarite et au renouvellement urbain
• Le contrat de construction de maison individuelle
• Vente en l'etat futur d'achevement
• Projet d'acte (Draft of the final deed of sale)
• Acte authentique de vente (Deed of sale)

Compromis de Vente

As a first stage, property searches will have to be carried out, verification that the vendor has the right to sell the property, and if a property loan is to be included this must be granted before the final deed of sale, called the "Acte de vente", is agreed. In preparation for these searches and applications being carried out, the notaire will draft and prepare a "Compromis de vente" which is a preliminary sales agreement.

There are several types of preliminary sales agreement and you must be clear which sort you are implementing:

A common type of preliminary sale agreement for a property purchase is the "Compromis de vente". It covers an existing property and commits both the vendor and the purchaser, having mutually agreed on the property and the purchase price. There is the opportunity with this type of preliminary agreement to incorporate "condition suspensive" (let-out clauses) to protect yourself.

Attention must be given to your "condition suspensive". There are three usual clauses:
(i) The purchaser cannot obtain a mortgage or property loan,
(ii) Exclusion (pre-emption) by the French Land Commission (SAFER),
(iii) An unsatisfactory "certificat d'urbanism", assessment of planning status of the property to be purchased.

There must also be an agreed date for completion. Generally completion can take place within 60 days after the "compromis de vente" is signed by both parties. However, often the completion date is extended by a further 30 days as it can sometimes take up to two months for the French Land Commission (SAFER) to respond to the notaire's request for the search.

In the event that this document (compromis de vente) is being prepared and you are not in France, you can ask your notaire to represent you by signing a Power of Attorney (mandat), that can be prepared in advance.

However, check very carefully that your name, address, the address of the property, etc. are correctly written. Also, do not be surprised that ALL your names will be included in the prepared documents: maiden name, and in the case of divorcees your ex-names, new name, marital status (single, married, divorced, widowed), profession, date and place of birth, your legal address and your nationality. Be prepared to provide evidence of all the above.

Upon signature of the preliminary agreement (compromis de vente), the purchaser must provide the deposit to the notaire, which is usually 10% of the purchase price. This payment can be made by bankers draft in Euro, but do discuss in advance with your notaire the method of payment.

FROM THIS POINT ON, YOU AS THE PURCHASER WILL FORFEIT YOUR DEPOSIT IF YOU INDICATE YOU SIMPLY DO NOT WANT TO PROCEED WITH THE PURCHASE OF THE PROPERTY. It is therefore very important that you are committed to the purchase, with the exception of the above let-out clauses (condition suspensive) or matters, which are deemed to be outside of the control of the purchaser. There is no turning back, without forfeiting your 10% deposit. [See below NEW LAW as of 1 June 2001.]

If on the other hand, the seller decides that he/she does not want to proceed, he/she must return the deposit to you, and may even have to pay you a charge. The seller and the purchaser must now, within the period of time stated in this preliminary contract, enter into a formal deed, drawn up and executed by the notaire, to complete the purchase of the property.

Promesse de Vente

This is another type of preliminary sale agreement and is similar to the "Compromis de vente" except that there are NO "condition suspensive" (let-out clauses). With this agreement the seller agrees to sell the property by a certain date, for a certain price and according to set conditions.

The buyer may be allowed a little more time to reflect on this decision, but as with the "compromis de vente", a deposit of 10% of the purchase price, or whatever is agreed, must still be paid when the "promesse de vente" is signed. This is the most common type of agreement in France, and the main advantage to a buyer is that the seller cannot withdraw their acceptance of your offer if all of the conditions in the agreement are met. The disadvantage to you as the buyer is that if you decide to withdraw you will lose your deposit.

New law as of 1 June 2001 (Loi relative a la solidarite et au renouvellement urbain)

The notaire will be aware of this new law, which came into force on 1 June 2001. It is designed to protect private purchasers by giving them a period of seven days to "reflect" on their prospective purchase. This new law will give considerable flexibility to purchasers, rather than the "point of no return" on signature of the "promesse de vente" or "compromis de vente" and handing over of the 10% deposit, the purchaser now has an additional seven days in which to reconsider his/her offer.

If the decision is to withdraw from the purchase, the deposit is refunded. And from what has been published so far, if this refund is not respected, then a fine of c. €30,500 can be imposed by the appropriate authorities.

Le contrat de construction de maison individuelle

If you are intending to build your own house and purchase a plot of land, which is possible in France, it is advisable to make serious enquiries to the French local authorities and building control departments to ensure you are able to obtain the relevant planning permission. What to you may seem the perfect location for the house of your dreams may be out of the question to the local planning department.

The preliminary sale agreement "le contrat de construction de maison individuelle" will be signed with the vendor of the plot of land. A separate contract should be made with a carefully selected builder. If you are expecting to take out a property loan for this sort of purchase, these documents will be required to make a loan application to your lender.

Vente en l'etat futur d'achevement

This type of preliminary sale agreement applies to properties which are in the process of being constructed, or not yet constructed. The agreement you will have prepared and signed is called the "Vente en l'Etat Futur d'Achevement" or "VEFA", and is literally the "Sale of property for future completion". It is the most common type of contract enabling you to purchase a non-completed property. Payments under this type of contract are made following a schedule of payments, usually linked to the progress of construction. These will be included in the "Contrat de réservation" (reservation contract), which will also list the price of the completed property and technical/building specifications.

The deposit payable under the VEFA agreement is usually 5% of the estimated purchase price for the property, which will then be deducted from the final price. The buyer will forfeit this deposit if he/she decides they simply do not want to proceed, except if the appropriate "condition suspensive" are inserted, as mentioned above.

Projet d'acte (Draft of the final deed of sale)

Whichever option of the above you have opted for, once the notaire has all the necessary information, a draft (projet de l'acte) of the final deed of sale will be prepared for you. This document will be passed between the two notaires (if the vendor and purchaser have each appointed their own representative). A photocopy of this draft should be sent to you by your notaire for you to check before signing the final purchase agreement.

Do ensure that this contract includes ALL the clauses from the preliminary sale agreement, for example:

• Correct identification of both the vendor and the purchaser
• Identification in precise detail, of the property and the title of the property (origine de propriété)
• The date when you, as the owner, will definitely take possession of the property and be entitled to make full use of it (propriété de jouissance) whether to live in, renovate, decorate, or just lock up
• A town planning certificate (certificat d'urbanism), which should restate any town planning regulations relating to the property, and which have been unearthed by your notaire
• All guarantees and estimates (which should include anticipated works to the building, as instructed by the co-owners, the annual costs of maintaining the common parts, any outstanding bills for the above)

Acte authentique de vente (Deed of sale)

The law in France stipulates that your notaire must ensure that all the legal work is complete, the required land searches have been carried out, your financing is in place and the necessary insurances are operating, before the "acte de vente" is signed. Evidence of these will be required prior to the final signature meeting.

You will be expected at this point to make several payments in Euro. Ask your notaire to provide you, well in advance, with the final breakdown/statement of the exact amounts. This should list at the very least: the deposit paid, the outstanding balance owed, what portion will be covered by your personal bank draft, what amount will be paid by a lender and the notaire's fees.

If you are not going to be present, then a power of attorney (mandat) must be prepared and in place, so your notaire can act on your behalf. Clarify with your notaire at the early stages of negotiation whether he will require notarisation by the French consulate of the power of attorney in the country where you are residing. If this is the case, you must be satisfied that the above figures are correct. The payment of the balance of 90% (or the portion which remains after the initial deposit), will be paid, usually by bank draft in Euro, payable to the notaire. (A bank draft in France can take a couple of days to prepare, so factor this time into your planned date for final signature). If a portion of this final payment is provided by a mortgage lender, this paperwork must be in order, and the lender's cheque in the notaire's possession.

However, do keep in mind that several things can go wrong at this point, and for peace of mind, check beforehand with your notaire that the various cheques are in hand and the insurance documents are correct, before agreeing to the signature of the final deed.

The meeting for the signature will be made as an appointment at an agreed place, usually the notaire's office. Expect the meeting to take several hours, and be prepared to have the final document read to you, word by word, in French.

Once the document has been read, and points discussed/explained in more detail, the notaires agree between themselves any other items, the cheques are then produced and handed over then keys are counted and handed over. The original deed of sale is signed by everyone, with every page being initialled by all parties. You are now the legal owner. Well done!

In line with French law, the notaire must retain the deed of sale of the property, but you as the purchaser are given a copy, known as "l'expédition". The deed is then registered at the "Bureau des Hypothéques" and no other person has any rights to this property, except you as the owner(s). As a final point, the relevant sections of the deed of sale are sent for registration at the French Land Registry.

Your notaire will send by post a copy of the final documents and a breakdown of the costs. Keep these safe. You will need to provide these documents when and if you decide to sell your property at some future date.

Services

Disclaimer

Tax law is complex and every effort has been made to offer information that is current, correct and clearly expressed. The information in this summary is intended to be no more than a general overview of the position and certain details have been deliberately omitted. The contents of this page should not be taken as an authoritative statement of French tax law and practice. Neither the author nor the publisher are responsible for the results of actions taken on the basis of information contained in this summary, nor for any errors or omissions. This text is not intended to render legal, accounting or tax advice. Readers are encouraged to seek professional advice concerning specific matters before making any decision.

• Who is liable to pay French income tax?
• Who is resident?
• Who is non-resident?
• Are there any other payments made from your income?
• What deductions can be made from income?
• What are the personal allowances?
• When must the tax be paid?
• What is the position of non-residents?
• What penalties are there for non-compliance?

Who is liable to pay French income tax?

This depends on whether for tax purposes you are "resident" or "non-resident".

Who is resident?

As a general starting point, if you spend more than 183 days a year in France it is in most cases safe to assume that you are resident for French tax purposes. But if you spent less than 183 days you could still be considered "resident" if either:

You have your permanent home in France
You conduct your main professional activity in France
Your centre of economic interest is in France

If so, you may be liable to pay French income tax. This is a complex issue that may also be affected by the terms of relevant tax treaties.

Who is non-resident?

Very simply, everyone who is not "resident" is "non-resident".

A non-resident may be liable to French income tax on all income from a French source. For example:
Rental income from a French property
Income paid by a French employer
If you are a professional sportsman, prize money.
However, the income can be subject to reliefs under the provisions of various tax treaties.

So, having established who may be taxed, what may be taxed as income? In tax terms it is an individual's annual disposable income, hard to describe but you know it when you see it.

For tax purposes this includes income from:
The performance of professional activity, investment income, salary etc.
Capital gains received from the disposal of real property for example, apartments or houses and from investments such as shareholdings. (See French Taxes)
Various allowances, deductions and treaty provisions are applied to the annual disposable income to arrive at the net taxable income. Tax is then calculated at progressive rates to a top rate of 54% for taxable income in excess of €45,000, remember this is after allowances and deductions - it is not quite as bad as it seems!

Are there any other payments made from your income?

Yes there are.
Social charges, known as the "CSG" and "CRDS", are deducted at source from employment income by the employer.
Residents who receive rental income or investment income are also liable to pay social charges at a flat rate of 10%.

What deductions can be made from income?

The French tax authorities generally allow taxpayers to deduct certain expenses that they have incurred, to enable them to earn or realise that income. Various credits may also be allowed. For example:
Business expenses that have not been reimbursed;
Travel to and from work or, in this case, you can elect to have an allowance equal to 10% of gross income;
Business rent;
Finance charges in respect of the business;
and Self-employed persons social security contributions.

What are the personal allowances?

The French tax regime uses a system, known as the family coefficient rules, under which an individual's taxable income is divided by the number of allowances to which he is entitled. The number of allowances reflects the composition of the family, so a single person receives one allowance but a married couple with two children three allowances

When must the tax be paid?

A tax return must be completed and returned to the tax authority by late March, for example the tax return due in March 2003 covers the period 1 January to 31 December 2002.

In the form you must provide:
• Details of your income
• Claimed expenses
• Deductions in the previous year
• The tax authority then calculates the tax liability and sends the tax bill

"Residents" must make a partial payment, equal to one third of the previous years tax liability, in February and May with the balance generally due between September and December. If a taxpayer wishes, he can elect to pay a proportion of the previous years tax by monthly instalments, with the balance due at the end of the year.

For first time French taxpayers, the tax due on the previous year's income is payable in its entirety in September to December of the following year.

What is the position of non-residents?

"Non-residents" must file the non-resident's tax return between late April and late June; the due date depends on the country of residence. Generally, all French source income must be declared, though there are certain exemptions when income is subject to tax and that tax has been deducted at source.

A non-resident is allowed few deductions when calculating the taxable income, although the family coefficient rules will apply, as will the progressive rates of tax from a minimum of 25% up to a maximum of 54% on the top slice of income

If the non-resident taxpayer is resident in a country with a tax treaty with France then it is likely that he will receive a credit against the tax due in his home country for tax paid in France

What penalties are there for non-compliance?

If the tax return is filed late or tax is not paid by the due date, a penalty of 10% of the outstanding tax plus interest is likely to be imposed. Generally interest is calculated at 0.75% per month.

Taxes

Disclaimer

• Wealth Tax
• Inheritance and Gift Tax
• Capital Gains Tax

Wealth Tax

French residents whose net assets exceed a certain level are liable to pay an annual wealth tax. This tax is calculated by referring to an individual's worldwide wealth, after deduction of liabilities. However, there are exemptions for business assets and works of art, subject to the proviso that a number of specified conditions are met. Take note: as a result of tax treaties some expatriates may be exempt from wealth tax

If an individual's net worldwide assets are in excess of €720,000 the excess is subject to a progressive tax which starts at 0.55% and rises to a maximum of 1.8% for the top slice of net assets in excess of €15 million.

Assets include all land and property, shares etc after deduction of liabilities, in the case of a house its value for tax purposes would be after deduction of any mortgage.

Inheritance and Gift Tax

What are these taxes?
In general terms, inheritance tax will be levied on the inheritance of assets after the donor's death and gift tax applies to a gifts made during the donor's lifetime.

When does the tax arise?
As a general rule:
- If the donor was resident in France at the time the gift was made; or
- If the recipient was resident in France at the time the gift was made; or
- If the gift comprises assets located in France
then tax will be payable.

What is taxable?
Tax is payable on gifts or inheritance of worldwide assets. However, for the purposes of inheritance tax only, tax is calculated on the net value of the asset, after deduction of liabilities. Further, it is subject to the application of international tax treaties to prevent double taxation.

What is the rate of tax?
The available allowance and the rate of tax depend on a number of factors: principally, the recipient's relationship to the donor needs to be established to determine the recipient's personal allowance.

A spouse's personal allowance is currently €76,000. This is reduced to €46,000 for parents and children. The balance in excess of the allowance is taxed at progressive rates from 5% up to a maximum of 40%.

For more remote family members and others, smaller allowances are given and higher rates of tax will apply. Generally the tax ranges from 35% to a maximum of 60%. Broadly, the rate of tax that is applied to gifts is the same as for inheritance tax.

What exemptions may apply?
The most important relief from inheritance tax are the international tax treaties that provide relief from double taxation. There are some other limited exemptions from inheritance tax but these exemptions are subject to a specific conditions being satisfied

Capital Gains Tax

The tax on capital gains is complex but the basic elements can be summarised as follows:

When will it apply?
Capital gains made on the sale of certain assets are subject to French income tax and certain specific social taxes known as the "CSG" and "CRDS". As a result, gains made on the disposal of certain assets must be declared when completing the annual tax return.

What is a "gain"?
Put simply, a gain is the difference between the original purchase price and the eventual sale price. The costs and expenses of the purchase and sale, and certain expenses during the period of ownership can be deducted for the gain.

Additional discounts may apply to real property, as set out below.

What are "certain assets"?
The are two principal categories of personal assets:
- Real property - a house, an apartment or land; and
- Investments - stocks, shares etc.

Other assets might be liable to tax on any gain and include works of art and bullion.

What is the position of residents?
If the taxpayer is resident for French tax purposes:
A gain realised on the disposal of real property may have the benefit of allowances before being taxed at the progressive income tax rates. (See the French Income Tax pages for details of the progressive rates.)
A gain realised on the disposal of investments will have the benefit of minimal allowances and, in essence, will be taxed at a flat rate of 26%.

What is the position of non-residents?
If you are non-resident for French tax purposes:
A gain realised on the disposal of real property will be taxed at a flat rate of 33%. The notaire instructed to act on the sale is a public official, and as such he is obliged to act as the tax collector, and will withhold the tax due on the gain. The gain on the disposal of investments are essentially tax free in France, although substantial shareholdings in private limited companies, i.e. a shareholding of 25% or more, may be subject to tax at the rate of 16% subject to the provisions of the relevant tax treaty.

Are there any reliefs or allowances?
Yes. For residents selling their home in France any gain may not be subject to tax, if the property was their principal private residence.

For both residents and non-residents, a gain on the disposal of real property may be subject to the following discounts:
The purchase price and costs incurred on the purchase are increased by a coefficient factor set out in published tables to discount for the effects of inflation; and a discount of 5% a year is allowed after the second year of ownership, with the effect that after 22 years any gain is not chargeable to tax.

In certain circumstances a gain made on the sale of a second home may also be exempt, providing a number of conditions are satisfied, including that the individual does not own a principal residence.

Inheritance Services

Disclaimer

Law is complex and every effort has been made to offer information that is current, correct and clearly expressed. The information in this summary is intended to be no more than a general overview of the position and certain details have been deliberately omitted. The contents of this page should not be taken as an authoritative statement of French law and practice. Neither the author nor the publisher are responsible for the results of actions taken on the basis of information contained in this summary, nor for any errors or omissions. This text is not intended to render legal, accounting or tax advice. Readers are encouraged to seek professional advice concerning specific matters before making any decision.

• Who should make a will?
• How to make a will
• Gifts, legacies and beneficiaries

Who should make a will?

French Residents: If you are permanently living in France at the time of your death you will be considered to have been "resident".

Property owners: If you own immoveable property in France, that is, a house, a flat or land. If your own moveable property in France, for example a bank account, or company shares, a foreign will may be sufficient, but only if you are not resident in France. Generally, it is best to prepare a will in France for assets located in France. There are circumstances when a foreign will may be used but it is likely be slow and costly. The opportunity for tax planning might also be lost.

How to make a will

For all practical purposes there are two types of will:

• The holographic will, testament olographe. This is most common form of will and it is also the easiest. It is written in manuscript by the testator and is then simply dated and signed by him.
• The authentic or notarial will, testament authentique.
As the latter name suggests, this is a typewritten will prepared by a notary on the dictated instructions of the of the person making the will, the testateur, who then signs in the presence of either a notary and two witnesses or simply two notaries. After signature the will is registered in the French central register of wills.

There is a third type of will known as the mystic will. It is almost never used, but worth mentioning for its name alone. Whichever type of will you chose you should always instruct a professional to take your instructions and prepare the document. Do it yourself wills can cause unnecessary problems and expense, and the opportunity for tax planning can be lost.

Gifts, legacies and beneficiaries

In France there is a system of forced heirship under the law. A defined proportion of the estate, réserve legale, must be given to specified categories of heirs: héritiers réservataires. Firstly, to your children and issue, and if no children or issue, then parents or, finally, grandparents if there are no surviving parents. The amount they can claim will take into consideration the value of gifts given during your lifetime

The remainder of your estate can be left as you wish, quotité disponible. It is possible to ignore these provisions but it is open to the héritiers réservataires to bring a claim for their entitlement. A spouse is relatively unprotected, though under new laws his/her position has been improved.

Having made a will you can at any time change your mind and instruct your legal advisor make a new will whether to add new beneficiaries or to take advantage of changes in tax exemptions and allowances or changes in your financial situation.