A considered decision
Our experts outline six things to think about when buying a French property
1. WHAT TO SIGN AND WHERE
When buying a property in France you will be asked to sign a number of documents. These can range from the bon de visite, which usually just confirms that you have been shown the property by a particular estate agent, to the legally binding purchase documents.
One of the most significant differences to buying property in England and Wales is that in France you contractually bind yourself to buying the property much earlier. The preliminary contract, usually the compromis de vente, is the document under which the buyer commits to buy a property and the seller commits to sell it. In England and Wales, a contract to buy a property is almost always prepared by a solicitor and is generally signed a few months after an offer has been accepted.
By contrast, in France the compromis de vente is often prepared by the estate agent and is signed shortly after the offer has been accepted. The buyer only has 10 days to back out of the purchase, from the date of signing, if they change their mind.
It is therefore vital to only sign a compromis de vente if you are sure that you want to buy the property. It is also sensible to either ask your notaire to draft the compromis for you, or at least check it.
If all goes smoothly, a couple of months later you will be asked to sign the transfer deed, or acte de vente.
It is always preferable to sign the documents in person. However, if this is not possible, you can ask your notaire to prepare a power of attorney for you ( procuration), which will enable a member of the notaire’s staff to sign the documentation on your behalf.
2. HOW TO BUY A PROPERTY JOINTLY IN FRANCE
There are different ways for two or more people to own property together in France. The main ones are:
This is the most common arrangement; each co-owner has their own distinct share. Shares can be equal or unequal, as agreed between the co-owners (for example 50:50, 25:75). Should one co-owner die, their share would pass according to their will.
If you own a property this way there are no shares as such. Should one co-owner pass away, the other automatically becomes sole owner of the property and is deemed to have been the sole owner from the date of purchase. This is regardless of what the deceased’s will stipulates.
Which method is best will always depend on the buyer’s particular circumstances, so it is important to obtain legal advice before making a decision.
3. WHAT IS A VIAGER?
A viager is a unique French system of buying and selling property between two individuals. It involves the buyer paying a bargain price (typically between 15%30% of the market value) in exchange for allowing the seller to remain in the property for the rest of their life. The buyer also agrees to pay the seller a monthly income during their lifetime. Only when the seller dies can the buyer take possession of the property.
From the buyer’s point of view, a viager is a form of property investment which gambles on the life expectancy of the seller. It could seem like a bargain to start with but it may be a long time before the buyer can actually use the property. Until then, he or she is bound to make monthly payments to the seller.
From the seller’s perspective, a viager can be seen as a form of equity release. If the seller is not concerned about leaving the property to relatives, then a viager is a way of securing an income, as well as occupancy of their home, for life.
Viagers are highly risky investments and anyone interested should seek professional advice.
4. LOCAL TAXES
A number of taxes apply to property owners in France, which it is important to be aware of. These include: • Taxe d’habitation is a local tax payable by the occupier of the property on 1 January every year. • Taxe foncière is another local tax, payable by the owner of the property once a year. If you occupy the property you own, then you pay both taxe d’habitation and taxe foncière.
A viager is a unique French system of buying and selling property between two individuals. It involves the buyer paying a bargain price in exchange for allowing the seller to remain in the property for the rest of their life
• L’impôt sur la fortune immobilière (IFI) is a wealth tax on residential property that applies if your property or properties are worth more than €1,300,000. • Like its UK equivalent, French capital gains tax is a tax calculated on the increase in value of a property when the property is sold. The rate is 19% if you are resident in France or in the EU, or 33% if not. The rate reduces according to how long you have owned the property, to the point that after 22 years, it becomes exempt. It is also exempt if it is your main home. • Income tax is payable on rental income if the property is let out. • Social charges are charges levied on some forms of income such as income from property rentals and property capital gains. These are levied on top of the relevant income tax and capital gains tax. • Inheritance tax may apply when the property owner passes away, depending on the value of the property and who inherits it. Inheritance tax in France is payable by the beneficiaries out of their share, rather than by your estate before it passes to the beneficiaries, as is the case in the UK.
5. DO YOU NEED A WILL?
Have you considered what would happen to the property you are buying should you pass away? If you have no will in place, the property would be subject to French intestacy laws, which may or may not reflect your wishes. Making a will ensures that your wishes are properly recorded and that your property and other assets pass to your chosen beneficiaries as far as this is possible.
France has a system of ‘forced heirship’ laws, under which you do not have total freedom to decide who you leave your estate to. Instead, rules dictate who inherits, depending on which family members survive you. These rules apply even if there is a will. However, if you are not a French national and you do not wish to be bound by the French succession rules, it is possible to by-pass them by ‘electing’ the law of your own nationality to apply to your French assets in your will.
If you have assets in both the UK and France, it is generally advisable to have two separate wills. This is to avoid delays, aid in the administration of your estate in both the UK and France and avoid the extra cost of administering one estate after the other.
Drafted correctly, it is possible for a single English will to cover your French property and be recognised as valid in France. However, if this is what you wish, it is important to review your existing will.
6. POWERS OF ATTORNEY
What would happen to your French property if a change in circumstances, such as an accident or health issues, mean you are not able to manage it yourself?
You should consider nominating someone you trust to look after your affairs in such an event. In England and Wales this is done by way of a lasting power of attorney (LPA). Under an LPA you can appoint people to look after your ‘financial and property affairs’ and your ‘health and welfare’.
Technically, your English LPA could be recognised in France, however this is likely to be a difficult process. A number of potentially onerous requirements could be imposed by the French authorities, as they will need to satisfy themselves that the document is legitimate and acceptable.
A safer option is to put in place a French power of attorney, known as a mandat de protection future to cover your French assets, alongside your English LPAs to cover your English assets.
There are different ways to prepare a mandat de protection future. It can take the form of a simple private document or a formal deed prepared by a French notaire. The latter is recommended, as you would benefit from the notaire’s guidance and expertise with the peace of mind that the document has been properly prepared and is safely stored at the notaire’s office.
Technically, your English lasting power of attorney (LPA) could be recognised in France, however this is likely to be a difficult process
Charlotte Macdonald is an associate and Rachel Ugalde is a solicitor at Stone King LLP stoneking.co.uk