Happy holidays, happy house hunting in France
Rolling countryside, vineyards bursting with delicious ripe grapes, temperatures tipping over forty degrees – what’s not to like about France.
Around this time of year many Brits will be taking the trip across the Channel to house hunt. Despite the extremely long drawn-out Brexit process we have found many are still following their plans to move to France, others to find the best area to buy a holiday home, perhaps with a rental opportunity too.
Here are some of our top tips for a smooth ride through the house-buying process and beyond. They are divided into four sections:
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(1) what to look out for when viewing properties;
(2) legal learnings;
(3) tax tips; and
(4) beyond completion.
1 Viewing properties
In addition to the usual points you would look out for when viewing a property anywhere, these are some specific issues to consider:
- Boundaries aren’t always clear on the land. You won’t always find a fence or hedge. Look out for orange plastic markers placed in the ground as these show the boundary lines.
- Check the water drainage system. If it’s an individual system (a fosse septique) you should locate the tank (properties in a hamlet might share a tank which will be sited on one of the properties). You should find out when the tank was last emptied. The seller has an obligation to get a report on the drainage system which will confirm if the system is in conformity with current environmental regulations. The cost of bringing the drainage system into compliance with current rules can be expensive and this may be a point to consider in the price negotiations.
- All swimming pools must be fitted with one of three types of security device (an alarm, a pool cover or a fence around the pool). The seller will need to confirm what device is present. The financial penalty for having no device is too high to take the risk of not complying.
- Investigate the rules regarding large ponds/lakes on the land. There are specific environmental rules and regulations relating to these and you wouldn’t want to take over a property only to find out expensive compliance work is required.
- Surveys are not compulsory in France. Property in France is “sold as seen”. The seller could remain liable if he fails to notify you of hidden defects in the property, but he would not be liable for any defects that you could have found on an inspection, so have a really good look around for possible problems and if in doubt get a surveyor’s report.
- The seller must give you reports on various aspects of the property at the point of approving the preliminary contract. For example, they will tell you if there is lead in the paintwork, if there is asbestos present, if there is a termite infestation, and if there are any problems with the gas or electrical installation. The seller has no legal obligation to rectify anything, but it gives you a heads up on work you might need to do, and to budget for it.
- Check for any building work (e.g. extension, conversion of outbuildings into dwelling) that was carried out by the seller in the last 10 years. You should check that all relevant planning permission and conformity of the work with planning consent was granted. You should also check which building insurance cover was taken out by the sellers at the time of the construction. You will want to ascertain which action you will have against the sellers if some defective work was to appear within 10 years from the construction work.
- Check how the asking price is made up. Is it inclusive of agent’s commission (frais d’agence inclus) so payable by you, or exclusive of commission.
- If you put an offer in, the agent is likely to ask you to sign an offre d’achat (offer to buy). This confirms that you have made the offer via that agent, to ensure they are paid their commission, but also to provide early written evidence of the offer and acceptance between you and the seller.
2 Legal learnings
A Notaire in France can act for both the buyer and seller. His responsibility is to the correct reporting of the transaction and remains impartial. You are free to appoint your own Notaire to act for you and they will split the fee. The Notaire’s fees are fixed by Government scales.
The preliminary sale contract is a conditional contract. The most common conditions are:
- that the search results are clear – local searches etc. are carried out after the first contract has been signed;
- that no charges registered against the property (e.g. an existing mortgage) that cannot be paid from the sale price;
- that there is a clear and unbroken history of ownership title;
- no pre-emption rights are exercised. The local authority and local rural land agency (SAFER) may have pre-emption rights, as could a current property tenant. Once the preliminary contract is signed, they are given notice of the sale and have the option to buy the property in place of the buyer. In practice, actioned pre-emption rights are in the minority;
- that the buyer is successful in getting a mortgage offer – the application is submitted after the preliminary contract is signed.
If any conditions are not fulfilled, the buyer could withdraw from the contract without penalty.
A buyer might want to ask for additional conditions, such as the purchase being conditional upon getting successful planning consent for building works, or conditional upon completion of a UK property sale. Any such conditions put in the contract are reliant on the agreement of the seller.
Once you have signed the contract you get a cooling-off period. You have ten days from receipt of the copy signed contract in which to change your mind. You don’t have to give a reason for backing out. Any deposit paid by then will be refunded.
An exact completion date is not stated in the preliminary contract, only a date by which completion should take place if all formalities have been fulfilled by then. This can make it difficult to organise travel over to France much in advance of completion. The gap between the contract and completion is generally around 3 months.
The final sale deed must be signed in the presence of the French notaire acting in the sale. A last inspection of the property prior to completion is always recommended, but if it’s not possible to be there, you can authorise someone else to sign the deed on your behalf (by way of a power of attorney document).
3 Tax tips
One important issue – linked to succession planning and inheritance tax – is deciding on which ownership structure to use.
The two main structures are indivision (each owner owns a distinct share which will pass on death via his Will or in accordance with fixed succession rights, if applicable) and tontine (automatic survivorship by surviving co-owners).
Your family structure and how you want the property to pass on your death will dictate what ownership structure to use. A couple with children of their marriage, wanting to leave their estates to the surviving spouse and then to their children, can buy indivision or tontine and their objectives will be met.
A couple with children of previous relationships will need to think more carefully. A stepchild inheriting from a stepparent pays French inheritance tax at 60% flat rate on all but €1,594 of their inheritance. The couple will want to think about the merits of buying in a sole name, or using the French ownership structure of usufruit to minimise the IHT charge for the children and avoid the 60% rate from applying. There is more choice now following the EU Succession Regulation but the right choice must be made.
The combination of the best ownership structure and the best provisions in a Will can ensure the least amount of inheritance tax becoming payable.
Taxe de publicité foncière is the equivalent of the English Stamp Duty Land Tax. It’s payable by the buyer on the purchase price. It is reviewed each year, and can vary from one département to another. It’s currently 5.81% for most areas.
Capital Gains Tax (CGT) isn’t payable until you sell the property, but you need to be thinking about it from the moment of purchase onwards. It’s payable in France (due to the location of the property) and in the UK (for UK resident sellers) with double tax relief available. The calculation for French CGT is quite different to UK CGT, and it is payable within just one month of a sale. It will be very important for you to keep a full record of all expenses – from the costs of purchase (legal fees, registration tax etc) through to any money you spend on works to the property and the costs of sale.
4 Beyond completion
If you are moving to France you must ensure you notify HMRC that you are leaving the UK, and inform the French tax authorities you have moved to France.
You will need to work out your responsibilities for filing tax returns, and how each element of income and gains will be taxed.
You will need to know what local registrations you must make, particularly if you are letting the property or running a business from it.
It’s highly recommended that you review your Will and update it as necessary.
The buying process in France can be straightforward. Informed decisions made along the way will lead to a contented and well-prepared owner. Bonnes vacances, bon recherche de maison!
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