Cote D'Azur
Riviera Radio in English 106.5 FM

 

Lowest rates
Book Now

Home Mougins Area Garden Weather Car Hire Estate Agents Travel Nice Airport Trains SKI Golf Fishing Shooting Home Repairs Insurance Legal Mortgages Security Banking Translation Tel / Internet Buy A Car Links Places To Visit Maps Markets Pool Care Taxation Tours/Transfer Surveyor General Repairs Satellite / TV Restaurant DAzur Plumber Fire/Ambulance Police
Taxation

Links

French Law & Tax in France, Advice for Property Buyers

Specialist tax service for English residents purchasing, renting and developing property in France

 

Is your French home subject to Capital Gains Tax?

The basic principal is that property in France will always be potentially subject to French capital gains tax, irrespective of your place of residence.

As in the UK, however, your “principal residence” is exempt from capital gains tax, so this is a major advantage.

One of the most frequent misunderstandings is caused by the fact that you can only call your “home” your principal residence if you are formally tax resident in France. We receive many calls from people, who have been surprised to be charged capital gains tax, since they have been living in the property for some time, but they have never entered the French tax system, nor completed a tax return.

At least one of the most positive changes in the legislation this year improves the chance that your previous “holiday home” can be called your principal residence. Previously, if you owned a property as a holiday home and then moved into it, you had to live in it for 5 years before calling it your “principal residence” for tax purposes. This delay has now been removed. In practice, however, you should still be able to show that you have completed a tax return, while resident at that address and the Notaires, who are responsible for collecting the tax, prefer to see two years’ returns.

If you are subject to capital gains tax on a property sale, how is the tax calculated ?

The basic rules are that the purchase price can be revalued, by purchase and sale costs and any major renovation bills, although there is now no inflation allowance. The resulting figure is subtracted from the sale price to calculate the taxable gain.

The gain is then taxable at a set rate of 16%, for European residents, with an a extra “social tax” ( a form of National Insurance contribution) of 10% ( rising to 11% this year) for French residents. Anyone who is not a resident of a European state will pay a set tax rate of 33%.

However, the conditions of acceptance of “renovation work” are very stringent. This must be carried out by a registered French artisan ( with appropriate invoice) and invoices for materials you have purchased yourselves are not allowed.

Unfortunately, the previous possibility that you could have an “expert evaluation” of the work done, instead of producing invoices, no longer exists, so capital gains, for the “bricoleurs”, who have done all the work themselves, is now much more of a problem.

Moreover, if you are non-resident of France, you are obliged to appoint an official “tax representative”, who is responsible for calculating and paying the tax on your behalf. Our experience of certain of these organisations is that they are expensive, uncommunicative and act more like tax inspectors, than your own “representative”.

Even so, all is not lost, since there has always been a significant allowance given for the length of time you have owned a property, which has seen major changes this year :
There is no allowance for the first 5 years of ownership, but every year, from then on, allows you 10% off your capital gain, with the result that a property owned for more than 15 years is free of Capital Gains Tax.

Whatever your situation, these rules show that the tax position of a British resident in France is always going to take some understanding. Taking professional advice has become even more important.
 

Buy to let properties - the income tax position

By David Anderson of Sykes Anderson

Please note that taxation is a complex subject and you should not take or refrain from taking any step without full independent advice on the particular facts of your case. The content of this article is of a general nature and no liability is accepted in connection with it.
David Anderson solicitor and Chartered Tax adviser answers English investors questions on income tax on French buy to let properties.


Q. Where do I pay income tax on my rents?
A. You have a primary liability in France. You also have to include the rent in your UK tax return and may have a further liability though you have a credit for any French tax paid.

Q. How is income tax worked out on rented flats and houses in France?
A. The first step is to decide whether the property is to be rented furnished or unfurnished. This is important and will have an important impact on the final tax bill. It also affects the local taxes (i.e. rates) you pay. If the property is let furnished it is taxed under the business tax rules. If it is unfurnished it is taxed under the property rental rules. Please remember this discussion is only about income tax and you need to think about tenants’ rights, which vary between furnished and unfurnished properties. You also need to think about other taxes such as Capital Gains Tax, Inheritance Tax and local taxes.

FURNISHED LETTINGS - BUSINESS TAX

Q. What about bed and breakfast?
A. They will be taxed under the business rules.

Q. What about gites?
A. They will be taxed under the business rules.

Q. Assuming I rent furnished how is the profit calculated and what can I deduct?
A. This is where it starts getting tricky and where mistakes can be expensive. If your total furnished rental income is a less than 76 300 euro per annum you can deduct a flat 72% and be taxed on the balance i.e. 28%. This simplifies book keeping and accounts. You can also be taxed either as a “professional” or a “non professional” landlord which has different and important tax consequences which extend beyond income tax. Getting this wrong can be very expensive long term for a landlord.

Q. What happens if your actual profit is either higher or lower than 28% of turnover?
A. It doesn’t matter. If you have chosen this tax option this is what you pay. However care needs to be taken when filling in your UK tax return especially if your real profit is much higher than 28% of turnover as the UK Revenue does not recognise this French tax option.

Q.Can you use this system if a company or an SCI owns the property?
A. No. There is a trap here for investors who own a property through an SCI. If it rents furnished property it loses its tax transparency and is taxed like a company.
English purchasers do not often appreciate this point.

Q. Any other angles on this?
A. Yes some good ones especially if you are doing gites or holiday lets. This enables you to get the best of both worlds. This opens up other interesting avenues worth exploring.

Q.If you have higher outgoings can you opt to be taxed in the normal way.
A. Yes. You may decide to do this if say your mortgage finance is high and you do not expect a profit for a few years. You will then need to fill in a more complex tax form with details of your expenditure.

Q. What can you deduct?
A. Maintenance costs, local tax, professional tax, management fees, insurance premiums, amortisation of the building, amortisation of the contents and mortgage interest payments.

Q. How is the amortisation, or writing down (depreciation) worked out?
A. The rate of write off depends on the life of the asset. It is between 10 and 20% for furniture and other chattels and 3.33 % for old buildings and 2.5% for new buildings.

Q. I anticipate the investment property running at a loss for a few years with me topping up the mortgage payments for the first few years. What should I do?
A. The fixed 72% deduction is not for you, as you will make a loss. Prepare your tax account in the normal way. You can carry the tax loss forward for the next 5 years and set it against profits from rented furnished property or other French business activity.

Q. Can I set the property rental loss off against my salary? I am a 40% taxpayer and if I made a £10,000 loss in the first year on the property investment can I reduce my PAYE tax bill by £4,000?
A. Provided you comply with some straightforward French regulations which I consider will not pose any difficulty you can set the loss off against any French income. This is needless to say very popular in France with high earners, as it does not require them to actually work in the business.

Q. My salary is paid in the UK. Will the UK Revenue allow this deduction against say my PAYE?
A. No You will pay UK tax on the French income (under Schedule D Case V), which prevents you from setting a loss on your French rental business off against your UK salary or indeed any other income. You can set it off against a profit on say a Spanish or other foreign rental property though this is probably worthless for most people. Of course the double tax treaty with France means you will not be taxed on the same income twice.

Q. So what do I have to do as a high earner to get the deduction?
A. Work out a way to receive some of your income in France. If you have your own UK business and intend to work part time in France and part time in the UK this is worth exploring.

Q. Do I have to charge VAT on the rent?
A. In most cases no because your turnover will be below the annual limits. If your turnover goes above the limits then VAT has to be charged.

Q. Do I have to pay French National Insurance on the rent?
A. Yes but only if you are French resident. This is at roughly 7%.

Q. After the net rent is worked out what rate is it taxed at?
A. 25% for non-French residents. It is more complicated for French residents but may mean they pay less.

Q. What about wealth tax?
A. You may be able to claim business exemption relief.

Q. What about Inheritance Tax? Can I get business exemptions?
A. This is more complex and outside the scope of this article.

Q. What about French Capital Gains Tax?
A. If set up properly you are completely exempt from French Capital Gains Tax after 5 years of renting the property. This is a fairly arbitrary and technical part of the French Tax Code with important tax breaks, which is not intended for the ill informed.

Q. What Capital Gains do you pay otherwise?
A. If not set up properly you are taxed as a private person and do not benefit even from the business capital gains tax regime.

Q. What is the “Professional Tax”?
A. This is similar to English business rates. Some areas of France levy this on landlords of furnished premises. This is worked out using the Land Registry rental values for the property and can be expensive. There have been a number of court cases as to whether the tax can legally be levied on landlords in these circumstances. The best approach is to find out if you are buying in an area where it is payable and if so how much will be due if you rent it furnished. There are ways you can become exempt from paying this tax. Please note you do not pay if you rent unfurnished because you are not then deemed to be carrying on a business.

Q. Any thing else I should know?
A. You can reduce your tax liability further by belonging to a “Centre de Gestion” which can result in your tax liability being reduced by 20%. Please also note that local taxes (rates) need to be thought through carefully as many English buyers are paying excessive amounts through lack of simple planning.

UNFURNISHED LETTINGS – PROPERTY TAX
Q. How is unfurnished rental property taxed?
A. Under a totally different tax regime. This artificiality has been criticised in France but as a taxpayer you should ensure you are set up to maximise the advantages. If your rental income is less than 15 000 euros you can opt to be taxed with fixed expenses of 40%. You can opt out of this if you wish.

Q. How is the net income calculated if you have income over 15 000 euros or opt out?
A. Broadly as for furnished property with a deduction of 14 of gross rental to cover depreciation

Q. Do I have to charge VAT on the rental? A. Normally not.

Q. How is the French Capital Gains Tax worked out?
A. You are taxed as a private person rather than as a business. This will usually result in you paying more tax. The 5-year exemption from French Capital Gains Tax for properly set up furnished lettings does not apply and you need to rely on the usual rules.

Q. Are there any other specific reliefs?
A. Yes. There is the Besson Law and the Lienemann law. These are technical and aimed at lower income tenants.

Q.What local taxes are payable?
A. The occupier of any furnished dwelling pays the taxe d’habitation whether used as a main home or second home. You generally do not pay this tax if you pay the professional tax. There are angles here to ovoid paying the professional tax if the taxe d’habitation is significantly less. The taxe foncier is also payable by the owner of a building or land. This is a local tax not to be confused with revenus foncier, which is income tax on rent. You can deduct this tax against your rental income if set up properly.


SYKES ANDERSON LLP French Income Tax Briefing Jan 2004


Visitor March 06 Hit Counter

 

Cote D'Azur

Lowest rates
Book Now

Home Mougins Area Garden Weather Car Hire Estate Agents Travel Nice Airport Trains SKI Golf Fishing Shooting Home Repairs Insurance Legal Mortgages Security Banking Translation Tel / Internet Buy A Car Links Places To Visit Maps Markets Pool Care Taxation Tours/Transfer Surveyor General Repairs Satellite / TV Restaurant DAzur Plumber Fire/Ambulance Police

Remember to tell then you found them @ cotedazurinfo.com

Site last updated 25/07/2010

Visitor No : Hit Counter

English information for the Frence riviera, Property Rental Mougins, Festival,Moulin, Golf, Gastronomie, Art, France, French Riviera, French Riviera skiing, cote d'azur, mougins information, Europe, Hotel, golf, legal, pool care, piscine, security services, electricity, telephone, notaire, mairie, ville, accommodation, Lodging, Reservation, Booking, Holidays, Auberge, Vacation, Vacances, Rental, Rent, Location, Real Estate, Tourisme, Tourism, Tourist, Touriste, Cannes, Nice, Monaco, Monte Carlo, Sophia Antipolis, Grasse, Picasso, Lamy, Etang, internet connection in France, telephones in France, shooting in france, shooting cote d'azur

The French Riviera information source,french riviera,cote d'azur,english. language, côte d'azur, riviera, information, directory, anglofile, portal, nordic, var, alpes-maritimes, nice, cannes, antibes, sophia, antipolis, menton, grasse, monaco, monte carlo, travel, tourism, var, angloinfo, anglo, info, anglo-info,cote d'azure

Country, Mougins, French Riviera, France, Cote d'Azur, Côte d'Azur, apartment, apartments, appartement, appartements, villa, villas, house, houses, rent, rental, rentals, sale, sales, forsale, property management, holiday, holidays, vacation, vacations, vacance, golf, golfing, golf course, golf courses, sail, sailing, tennis, sport, horseback riding, horse riding, swimming, watersports, immobilier, shooting, real estate, estate agency, estate agent, Grasse, Cannes, Nice, Antibes, Monaco, restaurants, food, La Ferme de Mougins, Moulin de Mougins, Picasso, Matisse, Renoir, properties, gardening, pool maintenance, art history, historic towns, Italy