Your financial move when buying property in France

This week on Riviera Radio 106.5FM, financial expert Peter Brooke from the IFA Spectrum Group joins Nice Properties in an interview to discuss the financial aspects to consider when buying property in France.

Whether you are buying an investment property or second holiday home, the way you structure your finances is integral in the security of your investment.

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As Peter explains, its not only just about getting a mortgage, it’s about taking into account all your personal aspects such as marriage, children, inheritance, retirement etc., in order to properly set your budget and your tax structure as well.

As a member of the Riviera Alliance along with Nice Properties and other leading English speaking services on the Cote d’Azur, getting a cohesive plan in place with a team that understands your needs and goals is imperative for a smooth and effective transition to France.

For more information about how to set up your financial structure, you can contact Peter at peter.brooke@spectrum-ifa.com or call : +33 (0)6 87 13 68 71. You can also read more about the financial services he specializes in here.

Capital Gains Tax and the Expat Property Owner

Guest post by Lorraine Chekir, Spectrum IFA Group

You have realized your dream, bought a property in France, perhaps as a holiday home to start with but now you have moved here, maybe to work, or perhaps you have retired.  The big question is what to do with your property or properties in the UK.

When moving to a new country many people are a little nervous about letting go of their old one, rightly so after all holidaying is one thing, but living in a foreign country quite another.  So often people keep their property in the UK, for a while at least, however this can have Capital Gains Tax (CGT) implications on a future sale.

A tax treaty signed between France and the UK which became operative on 1st January 2010, meaning that for former UK residents now resident in France, they are liable for french CGT on the future sale of any property including your former main residence.  However no liability will apply in the UK.

Main Residence

If you sell your UK home when you move to France or within a relatively short space of time (usually within a year) then no CGT will be payable in either France or the UK.  If however, you hold into it for a while ( then or rent it out) then you will pay CGT on it in France just like any other maison secondaire, with no allowance being made for the fact that it was your main home for a period of time.

Buy to let

If you sell your UK buy to let property when you move to France rather than at a later date then you will pay UK CGT.  To work out how much tax you will have to pay, take the selling price of the property, then deduct the buying price.  You can deduct the costs of buying and selling, e.g. solicitor’s fees, stamp duty, estate agents fees, advertising etc.  You can also deduct the cost of improvements to the property but not routine maintenance and repairs.  There is also an annual exemption allowance (£11,000 for 2014/2015 tax year).  CGT rates are 18% or 28% for higher rate tax payers.  HMRC website provides a step by step guide.

Any buy to let properties that you own in the UK and subsequently sell after you become a french resident will be liable to French CGT.

Ownership

An important point to note,  if you are married, but your UK property is only in one person’s name, it may be sensible to transfer the property into joint names prior to any sale to reduce any potential UK CGT liability.  There is no CGT payable between spouses/civil partners and the CGT calculation on sale will be based on the original purchase price for both parties.

In France Gift Tax applies between spouses and applies to gifts made in the previous 15 years so it is sensible to take advice from a professional before taking any action.

French CGT

Like UK CGT, you start with the sale price and deduct the purchase price plus any associated buying and selling costs and costs of improvements (but not repairs or DIY, invoices need to be provided from registered builders etc).  If you have owned the property for more than five years the notaire can apply an allowance of 15% of the original purchase price of the property – even if you haven’t done any work!

For EEA residents the starting rate for french CGT is 19% plus 15.5% social charges however these start to reduce on a sliding scale from year 6 of ownership onwards.  After a full 22 years have passed the CGT reduces to nil, however it is 30 years before the social charges reduce to nil.  Additional charges apply for gains above 50,000 euros.

Working out when, where and how much Capital Gains Tax you should be paying can be quite a headache and the best thing to do is take advice from a professional.

This article is for information only and should not be considered as advice and is based on current legislation.  25/05/2014.

Lorraine Chekir DipFA is a financial planner to the English speaking expatriate community. She is based on the Cote D’Azur and is a member the Spectrum IFA Group. She can be reached on +33 6 42432054, by e-mail  lorraine.checkir@spectrum-ifa.com  or www.spectrum-ifa.com/lorrainechekir  

British Pound Exchange Rates close to record break

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Good news for the Brits this week as the Sterling vs. Euro has been trading very close to an 18 month high this week and keeps challenging levels of 1.22 on the mid market level.

Although it is yet to break through this huge level of resistance, it is just a matter of time with high expectations set for next week.

Might be a nice time to take advantage of these current spikes..hint hint.

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Property Forum: Does 164C affect the 20% on rental income?

This question received through our Property Forum comes from Julia in Monaco.

Does the recent ruling on law 164C have any impact on the flat 20% income tax levied on rental income earned by Monaco residents with rental property in France?

The 164C tax rule basically states that you if you have a home in France that is available to you for part or all of the year, and if you are from a country who does not have a double taxation treaty with France (such as Monaco), you have to pay a French income tax which is equal to 3x the annual rental value of that property.

This tax law was recently challenged by a couple living in Monaco who actually won their case in the Conseil d’Etat which means that it is a final decision, and it had to do with the fact that this law was in breach of the law of the European Union with respect to the following ‘movement of capital shall be without prejudice to the application of third countries.’

Going back to Julia’s question, does this ruling does not have any impact on the flat 20% income tax levied on rental income earned by Monaco residents with rental property in France because the flat 20% is specifically applied for rental properties that are rented for the year, the other is based on a property that is available to you meaning not rented out.

However, property taxes are going to be given an overhaul review which will start early next year starting with the theoretical rental values that these taxes are based on. The goal of this review is to actually make taxation more fair and is scheduled to go into effect by Fall 2018. You can read more detail about this property review here.

A word to the wise, go talk to your financial advisors as they are the experts and everyone’s situation is unique.

Article collaborated by David Dignac, Price Waterhouse Cooper, david.dignac@fr.pwc.com

Sterling hits 14-month high versus euro, cutting cost of properties in Nice

If you plan to buy a Nice property in 2014, it may interest you to learn that the pound has recently hit a 14-month high against the euro.
Sterling reached 1.2258 versus the common currency late last month, its highest since January 10th 2013, or almost 14 months.

By contrast, last March 12th the pound was as low as 1.1403, meaning it’s since gained +7.5% or 8 cents.
To put this into context for you, were you to transfer £125,000 to Nice to buy a property, you’d now receive +€10,688 more than last March 12th.

Sterling has gained, because the UK economy is forecast to grow more than any other major country in 2014, according to the Bank of England, at +3.4%.
The euro meanwhile has declined, because prices in the Eurozone have risen less than 1.0% for the last 4 months now, fueling fears of deflation.

So in brief then, properties in Nice are more affordable in 2014, thanks to the improving exchange rate.

Capital Gains Tax Update

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Article collaboration with David Dignac, PriceWaterhouseCooper

If a non French tax resident sells a property in France, the capital gains, according to article 244 bis A of the French Tax code states that:

A person who is a tax resident of the European Economic area will pay the tax applying a levy on his capital gain at 19% which is the same rate than French tax residents.
A person who is a tax resident of another State has to pay on his capital gain 33.33% in general (except if his tax residency is a non-cooperative state or territory – defined by article 238-0 A of the French Tax Code.

Recent court decisions may allow individuals who are not tax residents in the European Economic Area to ask for the application of the levy of 19% (instead of the 33.33%) under certain circumstances.

This means that if you have paid a capital gain on a French property and paid a levy on 2013, you now have the possibility to claim for the refund for the overpaid amount, the difference between 33.33% and 19%.

Since this has to be done according to specific procedures with the French tax administration, it is the ideal time to speak to your financial advisor or tax accountants to see if you are eligible for claiming a refund on your 2013 capital gains tax.

Deadline: You have until the end of this year, December 31st 2014 to claim the refund.

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Victory in the Conseil d’Etat over Article 164C CGI

As you may or may not know, the infamous French Income Tax code Article 164C CGI (Code General des Impots), has been a point of contention with international buyers particularly from those countries who are not exempt from the double taxation treaty with France. Those who are from countries that do have a double tax treaty with France are of course exempt from this tax.

Article 164C states that any non tax resident of France who has property in France available to them, is liable for French income tax which is 3 times the annual rental value of that property.

So, for residents in countries that do not have double tax agreements with France, such as Monaco, it means that if you have a second home in France, you have to pay the 3 times annual rental value.

So, here is the big news for you.

Last year, on December 26, 2013, a ruling No. 360488, was made by the French Conseil d’Etat which is the supreme court here in France, confirming that Article 164C of the French tax code is actually in breach of EU law.

The case, commonly known as Kramer from a german couple living in Monaco, challenged article 164C for a property they bought in France for their own use, and actually won their case in the Conseil d’Etat.

The ruling was based on a decision formerly made by the Court of Justice of the European Union taken on the 17th of October, 2013 C-181/12 that relates to the 4th freedom of the European single market which is freedom of the movement of capital, specifically Article 64.1 of the Treaty on the Functioning of the European Union which states that “prohibiting restrictions on the movement of capital shall be without prejudice to the application to third countries of  any restrictions which exist on 31 December 1993 under national law or Union law adopted in respect of the movement of capital to or from third countries involving direct investment including real estate-..”

So this means that anyone living in Monaco who has property in France for personal use should be able to use this December 26th ruling by the Conseil d’Etat to avoid paying this -3x the annual rental value income tax from Article 164C.

Please note that this is an informational update on this ruling, and is by no means any legal counsel.

That being said, it is probably a good time to meet with your financial or tax advisors to see if your situation is in anyway affected or benefitted by this ruling.

Related article

Download French Tax document

 

Thinking outside the Bank

There is no surprise that technology changes the way we live our lives. With instant information and services at our fingertips, traditional methods of doing things are now competing with newer and faster options that make life easier.

Traditional processes like banking is one of them.

While banking is obviously still a necessary means of controlling your money, some of their functions are seeing more competition from payment services such as Bitcoin and currency exchange.

While bank accounts and obtaining bank loans are still imperative in ones personal finance, attractive options for currency exchange are making people take a second look at how they are conducting their personal business.  Features like Fixed Forward contracts that guarantee a fixed price over 2 years can be advantageous especially when the financial markets are volatile and unpredictable amid an uncertain economic ambiance.

Whats more is how currency exchange companies can truly compete with banking institutions with lower rates because of their high trading volumes that in the end can save the client an average 3-5% more than the banks with a faster transfer time included. So that means if you are moving a considerable amount of money, there are definitely real savings to be had here.

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A sign of the times that reminds us to take another look at how we are doing things to manage our lives. It might be worth your time and money!

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Elements of Design Boast Big Returns on Niche Investments

One cannot deny the fact that French Riviera has revealed itself as one of the safest places to invest in property. Year after year, French lifestyle enthusiasts buy holiday homes for pure pleasure,  while savvy real estate investors bank on the lifestyle yielding property market brimming with diverse real estate niches. Of course the latter offers one tiny caveat, you have to be able to see it.

While there is no shortage of idyllic sea view apartments and luxury homes along the Cote d’Azur, the ability to be able to see true investment potential is to be able to have a vision beyond the grid. Evolving vintage neighborhoods, old Bourgeois buildings and former Belle Epoque mansions are just the tip of the iceberg. The key concept to capitalize on niche property investments here is to understand a simple underlying fact: people create their own environments.

Mark Howorth, a bold creative in interior design

Enter in London’s bold interior design creative Mark Howorth, from Luxury Interior Designer Callendar Howorth, who not only designs bespoke living spaces in the United Kingdom and the French Riviera, but also has captured the essence of revival and fortitude with his recent complete renovation of a traditional Nicois style apartment in a typical neighborhood off Garibaldi square in Nice.  While your usual person might not have seen anything special, Howorth and a couple of other avant-garde restauranteurs saw a diamond in the rough with the end result being a thriving chic neighborhood with fabulous restaurants, brasserie, and one gorgeous centrally located apartment in the heart of it all, reaping the benefits of a courageous leap forward.

Design Elements

Elements of design serve as the framework that allows one to be more in touch with their world within their context. A well done interior design subtly illustrates this interaction as if it had always been there. You enter a room and the feeling is lightness, comfort, ease….a mirror of your personal world. In essence, interior style is a true art form that provokes the way you want to live your life and what is important to you.

“Creating comfortable and exciting homes on the Côte d’Azur is really satisfying as many places have stunning original features.  Stone walls, vintage fireplaces, Frescos and Nicois tile are abundant and enable me to really work on the character of the space. By adding excellent lighting, modern finishes and eclectic furniture the results can be stunning.” – Mark Howorth

“I did this renovation on Rue Bonaparte last year.  The apartment had not been renovated in over 40 years and it looked very tired and was subdivided into small rooms. I opened up the main living space to create one large open plan living / kitchen and dining area – a perfect place to entertain.  I also completely remodeled the bedroom and bathroom areas to create two bedroom suites with en suite shower and bathrooms.

Purchase price:  420,000 euros – Renovation: 80,000 euros – Upon completion of the renovation market value: 670,000 euros

I hope that you will agree that the before and after photographs say it all…..” – Mark Howorth

Renovation is nothing new. Buying, restoring, and selling is not a new type of investment. What is different though, is the approach. The stance of holistically integrating how we want to live and how we want to see the world. While some people might feel that renovation is just an added expense, understanding the value of true interior design as a part of your property investment as the fuel that will increase your return on investment is the reason why places emerge and evolve…because someone dared to look beyond what was there.

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An Exceptional Year to Sell Your Home

While 2012 was marked by a “wait and see” attitude towards selling property due to the global and Eurozone economic climate, 2013 has a new impetus that is creating a more favorable ambiance for those who are considering in selling their home this year.  In effect as of September 1st 2013 and running until August 31st 2014, an “exceptional” 25% abatement in the total taxable part of the capital gains for second homes was established by the Hollande administration to boost the real estate market.

So what does this mean for you?

This means that if you have a second home in France that you have been considering selling, perhaps to upgrade/downgrade or would like to explore another area in France, you have until before the 31st of August of next year to sell your property in order to enjoy the 25% abatement.

In addition, the holding period for a property to be exempt from capital gains that was originally 15 years then dramatically changed to 30 years, has been brought back down to 22 years.  Please note that this only applies to capital gains and not social contributions which are exempt after a 30 year holding period.

Below you will find the calculations that demonstrate the exceptional 25% abatement and without, for both French citizens and for citizens residing within the European economic zone.

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A great resource for tax information and regulations for non-residents can be found at SARF -The Accredited Tax Representatives for non-Residents.