IN GOOD COM­PANY

If you’re buy­ing a prop­erty in France, you might not have con­sid­ered com­pany own­er­ship. Deb­bie Brad­bury ex­plains how it can be ben­e­fi­cial depend­ing on your sit­u­a­tion

Living France - - Contents -

Find out why com­pany own­er­ship of your French home is worth con­sid­er­ing

Are you think­ing of in­vest­ing in French prop­erty and want to be sure you pur­chase in the most tax­ef­fi­cient way to suit your per­sonal cir­cum­stances? If so, be­fore you sign on the dot­ted line, make sure you have an­swered the fol­low­ing ques­tions:

Who is buy­ing the prop­erty and ul­ti­mately who is pay­ing for it? Will you need to fi­nance the pur­chase and, if so, will you bor­row in France or re­fi­nance your UK prop­erty? Are you con­sid­er­ing an old prop­erty or look­ing to buy ‘off-plan’? What is your per­sonal sit­u­a­tion with re­gards to spouse, chil­dren, and who would you pre­fer to in­herit the prop­erty on your death? What is the value of the prop­erty? What do you in­tend to use the prop­erty for? If you hope to earn a rental in­come, will you be let­ting it out long-term, un­fur­nished, or will it be let fur­nished? If you in­tend to let the prop­erty fur­nished, on a sea­sonal ba­sis, will this be self-catered or do you in­tend to of­fer a range of ser­vices?

WHAT WILL THE PROP­ERTY BE USED FOR?

If you are pur­chas­ing a prop­erty that will only ever be for per­sonal use, then you may not need to com­pli­cate things by set­ting up a com­pany struc­ture. How­ever, this may de­pend on your per­sonal sit­u­a­tion and who you wish to in­herit the prop­erty should you die. It could be pru­dent to set up a SCI ( so­ciété civile im­mo­bil­ière) where there are chil­dren from pre­vi­ous re­la­tion­ships, or if you are not mar­ried, or if you are pur­chas­ing prop­erty to let out un­fur­nished.

How­ever, if you are in­tend­ing to let the prop­erty in or­der to make a re­turn on your in­vest­ment, you need to look at all the above ques­tions to see which method of pur­chase suits your per­sonal sit­u­a­tion best.

1) OWN­ER­SHIP IN JOINT NAMES

A mar­ried cou­ple, with chil­dren from the same mar­riage, who wish to let their prop­erty fur­nished on a self-catered ba­sis can run the rental ac­tiv­ity in joint names, with no need for any form of com­pany set-up. In most cases, mar­ried cou­ples who jointly own prop­erty have to sub­mit an­nual profit and loss ac­counts for the rental ac­tiv­ity, en­abling them to deduct all costs re­lated to the rental ac­tiv­ity, as well as an an­nual al­lowance for de­pre­ci­a­tion, which is in the re­gion of 3% of the value of the rental prop­erty. Any prof­its are split be­tween the spouses and a joint tax re­turn is sub­mit­ted to the author­i­ties.

Lend­ing is straight­for­ward when you want to bor­row as pri­vate in­di­vid­u­als.

2) COM­PANY OWN­ER­SHIP

There are dif­fer­ent forms of com­pany that can be used to pur­chase a prop­erty where there are more com­pli­cated sit­u­a­tions, ei­ther with re­gards to the re­la­tion­ship be­tween the en­vis­aged own­ers and pos­si­ble in­her­i­tance is­sues, or with re­gards to the type of ac­tiv­ity to be car­ried out at the prop­erty.

Also, as wealth tax is ap­plied to high-value as­sets in France, a com­pany pur­chase may be a way of di­vid­ing up the prop­erty into shares, partly owned by par­ents and chil­dren (or other share­hold­ers) to avoid an­nual wealth tax and pos­si­bly in­her­i­tance tax at a later date. It is also eas­ier to trans­fer shares among share­hold­ers as these are classed as move­able as­sets, and if you are non-res­i­dent in France, the tax­a­tion of these trans­ac­tions is gov­erned by the law of your coun­try of res­i­dence rather than French law.

An SCI is a civil com­pany. It is par­tic­u­larly adapted for un­fur­nished rental of com­mer­cial units, or long-term un­fur­nished habi­ta­tion, as it al­lows for an­nual de­duc­tion of all costs re­lat­ing to re­fur­bish­ment and re­pairs, loan in­ter­ests and mort­gage reg­is­tra­tion fees, whereas there is no an­nual de­pre­ci­a­tion al­lowance.

One of the ad­van­tages over joint own­er­ship, from a le­gal point of view, is that the de­ci­sions are made in the ma­jor­ity. This is also a trans­par­ent com­pany, with an­nual dec­la­ra­tion of share­hold­ers.

The tax regime ap­plied is that of pri­vate in­di­vid­u­als, so any prof­its from the com­pany are dis­trib­uted to share­hold­ers and taxed in­di­vid­u­ally ac­cord­ing to that share­holder’s res­i­dency and other in­come, and any CGT is cal­cu­lated ac­cord­ing to the pro­gres­sive scale depend­ing on num­ber of years of own­er­ship.

Banks lend eas­ily for an SCI struc­ture as the in­di­vid­ual share­holder’s in­come is taken into ac­count for the pur­poses of cal­cu­lat­ing re­pay­ment of the loan in the same way as joint own­er­ship.

A SARL is a com­mer­cial lim­ited li­a­bil­ity com­pany. This type of com­pany is adapted for run­ning pro­fes­sional ac­tiv­i­ties, such as catered fur­nished rental (ho­tel-type ser­vices) or any other tra­di­tional pro­fes­sional ac­tiv­ity.

If the SARL owns a prop­erty and runs the ho­tel-type catered ser­vices, not only are all

run­ning costs de­ductible from turnover, but there is also an an­nual al­lowance for de­pre­ci­a­tion.

How­ever, this is a purely com­mer­cial com­pany and as such its prof­its are taxed on the cor­po­ra­tion tax regime; any dis­trib­uted in­come is then taxed on the in­di­vid­ual tax regime and cor­po­ra­tion tax is due on the sale of the prop­erty. This will be cal­cu­lated on the dif­fer­ence be­tween the book value of the pro­fes­sional as­set at the time of re­sale and the sale price rather than on the orig­i­nal pur­chase price, which could give a much higher gain.

Banks will re­quire sev­eral years’ ac­counts or a three-year busi­ness plan if cre­at­ing a new SARL be­fore they will agree to lend, as this would be classed as a busi­ness loan.

It would be very un­usual to struc­ture a pur­chase us­ing a SARL that is sub­ject to cor­po­ra­tion tax as the tax­a­tion would be highly un­favourable on re­sale.

It’s worth not­ing this would also be the case if an SCI were to run a fur­nished rental ac­tiv­ity di­rectly, as it would mean that the cor­po­ra­tion tax would ap­ply, as with a SARL.

A SARL de FAMILLE has the ad­van­tages of be­ing a com­mer­cial lim­ited li­a­bil­ity com­pany but gov­erned by the pri­vate in­di­vid­u­als’ tax regimes. It is a very good op­tion when all pur­chasers are re­lated by di­rect line (par­ents, chil­dren, grand­par­ents, brothers and sis­ters, and their im­me­di­ate spouses) as it can cover the even­tual in­her­i­tance is­sues as well as en­abling the prop­erty to be used for a com­mer­cial ac­tiv­ity (fur­nished rental, ho­tel-type ser­vices etc).

Again, one of the ad­van­tages over joint own­er­ship, from a le­gal point of view, is that the de­ci­sions are made in the ma­jor­ity. This is also a trans­par­ent com­pany, with an­nual dec­la­ra­tion of share­hold­ers.

As it fol­lows the in­di­vid­ual in­come tax regime, there is no cor­po­ra­tion tax to pay on prof­its, but all prof­its are au­to­mat­i­cally dis­trib­uted to share­hold­ers and taxed in­di­vid­u­ally ac­cord­ing to that share­holder’s res­i­dency and other in­come. Any CGT is cal­cu­lated ac­cord­ing to the pro­gres­sive scale depend­ing on the num­ber of years of own­er­ship (there is no ex­emp­tion af­ter five years*).

Some banks do not dis­tin­guish be­tween a SARL de Famille and a purely com­mer­cial SARL and it is there­fore im­per­a­tive to check with your bank whether they are happy to lend to a SARL de Famille, as with an SCI.

Hope­fully the above guide­lines are use­ful but if you have more ques­tions, your no­taire can ad­vise you on even­tual in­her­i­tance is­sues.

As wealth tax is ap­plied to high­value as­sets in France, a com­pany pur­chase may be a way of di­vid­ing up the prop­erty into shares

Deb­bie Brad­bury is a co­or­di­na­tor of English­s­peak­ing clients at SAREG, a char­tered ac­coun­tancy firm ad­vis­ing own­ers of prop­erty in France. sareg.com

*It is im­por­tant to note that the five-year ex­emp­tion for CGT in France re­lates only to prop­er­ties used for run­ning a pro­fes­sional ac­tiv­ity where the own­ers are di­rectly in­volved in the busi­ness. It is not be­cause you own a prop­erty with a com­pany that it be­comes a pro­fes­sional as­set.

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