ON THE MONEY
It’s important to factor in the one-off and recurring expenses you’ll have to pay as you buy a property and settle in France, as Rewan Tremethick explains
The one-off and recurring expenses you’ll need to factor in when buying a home in France
The UK tax year will soon be ending, and seeing as it’s on everyone’s minds anyway, now seems a good time to examine the kinds of taxes you will be liable for as you move to France. Just as in the UK, there are quite a few to keep track of! We’ll also be exploring some of the currency services you can take advantage of in order to help make your money go further.
Let’s start by looking at some of the biggest costs you’ll come across when moving abroad; namely the one-off and recurring expenses you’ll be liable for as you buy a property and settle across the Channel.
ESTATE AGENT FEES
There is no consistent law in France regarding who pays the agent immobilier’s fees when buying a property. It can be either the buyer or the seller. The estate agent works for the seller, entering into a contract called the mandat de vente. This specifies who pays the fees, but it is important to note that this only applies if you agree to it. The contract is between the seller and the agent, so has no legal power over you. If you refuse, you will likely have to negotiate as the seller will want to mitigate the extra costs.
Estate agent fees are usually between 5 and 10% of the property’s valuation and are liable to TVA ( taxe sur la valeur ajoutée), the French name for VAT.
Initially, the idea of having to pay the estate agent’s fees may seem unappealing, but it could be to your advantage. Sellers paying the fees will increase the asking price of their property to compensate for the additional outlay. This raises the notaire’s fees due to be paid by the buyer, as these are calculated as a percentage of the sale value of the property.
If you agree to pay the estate agent’s fees, make sure that these are outlined separately in the contract from the cost of the property, to avoid these being taken into account for tax calculations.
Although often referred to as ‘ notaire’s costs’, the money you pay to the notaire is actually distributed to several different places. As well as the fees charged by the notaire – which are between 2.5 and 5% excluding additional costs – you will also have to pay them a fee for preparing the deeds to the property, mortgage fees, registration taxes and the necessary VAT on the purchase, among other costs.
In total, 80% of the money paid to the notaire is made up of taxes, which the notaire then pays to the state on behalf of the client; 10% is used to cover expenses, such as drawing up documents and carrying out surveys, with the final 10% remunerating the notarial service itself; known as the émoluments et honoraires.
Fees paid to notaires are held at the Caisse des Dépôts (Deposit and Consignment Office) and are only released once all formalities of the sale have been completed.
In total, notaire’s fees can be equivalent to around 40% of the purchase price of a new-build property, or around 25% on a property that is more than five years old.
Unfortunately the taxes don’t stop once the property purchase has been completed! Also known as the ‘occupier’s tax’, the taxe d’habitation is the French equivalent of the UK’s council tax. It is levied on every household in France, regardless of whether it is a main home or a second residence.
The person who occupies the property on 1 January – the start of the French tax year – must pay the taxe d’habitation due, whether this is a tenant (paying or otherwise) or the owner. This does not necessarily mean you have to be present in the property on that day, just that you currently have the right to occupy the home and it is in suitable condition to be occupied.
Broadly speaking, the tax is calculated by taking the average rental cost in your area and multiplying this by a percentage set by your local commune (council). It is collected by the central government, however.
It is usually paid as a lump sum by 15 November, although you can also pay it in monthly instalments. Because you know the date that the tax is due to be paid, you can use a forward contract at an earlier point in the year when the market is in your favour to fix a strong GBP-EUR exchange rate. This helps to effectively reduce the amount of tax you have to pay by securing you more euros for your pounds.
Also payable every year is the taxe foncière, or ‘fundamental tax’, which is divided into two parts: tax on buildings ( taxe foncière sur les propriétés bâties) and land ( taxe foncière sur les propriétés non bâties). This is paid by the owner of the property, irrespective of who occupies it, and is also calculated based upon the theoretical rental value of your home, adjusted for inflation. This is due on 15 October and is paid in arrears, not in advance.
The taxe foncière comprises several additional taxes and charges, including a charge for collection of household rubbish ( taxe d’enlevement des ordures ménagères) for those communes where this service is provided. The funds collected are split between the commune, the group of communes that the commune belongs to and the department.
The occupier is obligated to pay the tax for the full year, even if they sell their property during the year. Sellers in France therefore often stipulate in the contract that the buyer must share the tax burden with them.
Unlike the taxe d’habitation, the taxe foncière is paid regardless of whether or not you live in the property, have it as a second home, or rent it out permanently.
DO YOUR SUMS
These fees and taxes can add a lot to the total cost of purchasing a French property, but knowing about them in advance means you won’t be in for any nasty surprises and that you can budget accordingly. Considering different taxes are due at different times of year – and you may be required to pay them even if you haven’t been present in the country much (or at all) – it’s even more important to take your time and stay on top of your French tax requirements.
As well as planning your finances for the year, you can do the same with your currency transfers. Work out which outgoings require a lump sum transfer and which will require smaller, regular transfers, and then use the variety of transfer options at your disposal to help make your money go further.