What you need to know about own­ing prop­erty in France

Yorkshire Post - Property - - PROPERTY - Adrian Wid­dow­son

THE lat­est changes to the tax sys­tem in France have fo­cused at­ten­tion on the tax treat­ment of over­seas prop­erty.

These changes in par­tic­u­lar may re­sult in higher tax bills if you own prop­erty in France. This means that you could have tax to pay in both the UK and France, and you then need to know how the in­ter­ac­tion be­tween the two tax sys­tems works.

Let’s look at your sit­u­a­tion if you have a prop­erty in France that you let out for part of the year.

Not ev­ery­body re­ports such in­come to the French tax au­thor­i­ties, but to stay on the right side of their laws you need to.

You pay French tax on the prof­its, which broadly speak­ing will be cal­cu­lated as the rental in­come you re­ceive less the run­ning costs.

In­ter­est on loans that you have taken out to pay for the prop­erty will be de­ductible from the tax­able prof­its, but not the cap­i­tal re­pay­ments.

How­ever, you will need to con­sult an ex­pert in French tax to help you to work out the tax­able prof­its and send your re­turn to the French au­thor­i­ties.

The French in­come tax rate un­der the lat­est changes is 35.5 per cent, which is a big in­crease on what UK peo­ple used to pay, but is ac­tu­ally no more than French peo­ple have been pay­ing for some time.

Then you need to re­port the same in­come on your UK tax re­turn.

This time the prof­its are cal­cu­lated us­ing the UK’s rules, so you need to con­sult a UK tax ex­pert.

There are dif­fer­ences in how ex­penses are dealt with as be­tween the two tax sys­tems. One ex­am­ple is the treat­ment of re­pair and main­te­nance costs.

So far you have two tax cal­cu­la­tions and two amounts of tax payable.

This is where the tax treaty comes in, and al­lows you to re­duce your UK tax for the French tax that you pay.

How­ever, you can only re­duce your UK tax to nil. If the French tax is higher, you won’t get a re­fund for that.

Mon­sieur Hol­lande has also raised the rate of tax on French cap­i­tal gains for UK prop­erty own­ers.

If you make a profit on sell­ing a French prop­erty you will now face a French tax rate of 34.5 per cent.

Be­cause you live in the UK, you will also have to work out a gain for your UK tax re­turn.

The cal­cu­la­tion of the tax­able gain is all-im­por­tant, and the rules in the two coun­tries are dif­fer­ent.

One key point is the cur­rency in which you work out the gain. For the French tax cal­cu­la­tion, you com­pare the sale price in eu­ros with the cost in eu­ros.

These fig­ures will gen­er­ally be the ac­tual euro amounts that you pay and re­ceive.

There are then other ad­just­ments to make for the French tax cal­cu­la­tion.

One is a per­cent­age re­duc­tion in the gain de­pend­ing on how long you have had the prop­erty.

If you have paid for im­prove­ments or re­pairs some of those costs may be de­duc­tions from the gain on sale. Here in par­tic­u­lar you need good lo­cal ad­vice.

When it comes to the UK tax re­turn, the gain is worked out in sterling terms, ap­ply­ing the ex­change rates for the pur­chase and sale dates.

So the amount of the gain on the French tax re­turn may be dif­fer­ent from the gain on the UK tax re­turn, be­cause of ex­change rate move­ments.

The ba­sic idea of dou­ble tax re­lief is then the same as for in­come tax.

You pay the French tax, and then re­duce the UK tax for the amount of French tax paid.

But as with in­come tax, you won’t get a re­fund if the French tax is higher.

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