Buying a Property in France - Diagnostics
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Anyone who buys a property in France will know that the first contract will have to have attached to it various inspection reports, known as diagnostics. The reports are provided for information, and it is important to understand exactly what they cover, what they mean, and what they do not tell you.
The nature of the searches to be carried out depends on the age, location and type of the property. If you are buying an apartment, there will be a measurement to establish the internal surface area. In many areas of the south and west of France there will be a termite inspection. Built before 1948 the property will probably be subjected to a check to establish if there is any lead-based paint.
Built before 1997 and the inspector will look to see if there is any asbestos in the property. The drainage will also be checked. If there is no mains drainage, the system will be tested to ensure it not only functions correctly but it complies with current regulatory standards.
In addition to these inspections relating to the property itself, information must be provided about the physical status of the region - whether there is any known history or future risk of matters such as flood, landslide, avalanche, forest fire and so on. This report will give a picture of the whole area - and do not be surprised if there is a history of avalanche in an alpine resort. The two points to pick up from this are that it is important to establish in the contract that no such incidents have affected the property to be bought, and that there may be limitations on building because of any risks.
These inspections can however be somewhat limited. The termite inspection, for example, would only declare active infestation if the inspector saw them, but without actually breaking the surface of the wood. This means that the inspector will not declare that the property is free of termites: rather that he could not see any evidence of their presence on the day. Furthermore, the inspector would not declare if a previous infestation had left the woodwork so damaged it was about to cave in.
The result is that the inspections are strictly limited. They do not replace the benefits that can be gained from commissioning an independent survey – that could also be a good negotiating tool for the price.
For individual advice, please contact Matthew Cameron here.
We at Cle France - The French Property Network are proud to work in partnership with Ashton KCJ - Legal services. If we think our clients need further legal advice or have a specific legal question that needs solicitor involvement when buying or selling a property in France we can recommend Matthew Cameron and his team for expert advice.
French tax rises effect your French Property purchase
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The French finance bills for 2013 and 2014 have brought some changes in rates that may have an impact on the market. These measures have been thought out by the French socialist government as a way to improve French public finances and they affect residents and non-residents alike. They also affect purchases as they mean a rise in Notaire’s fees.
Your French Property Purchase:
Starting from the 1 January 2014 all the TVA rates have gone up. This means that current expenses will rise as the 7% reduced rate for restaurants, construction, and ebooks, has risen to 10%. However the 5.5% rate, for food, hotels and entertaining has fallen down to 5%.
The main measure of interest for a property purchaser is the 19.6% standard rate which has gone up to 20%. Whilst this means that the rate is the same as the VAT in the UK, this entails a slight raise in the Notaire’s fees for all property transactions.
However one must keep in mind that the France and UK rates are not the highest as Spain and Belgium for instance have increased their rates to 21 %.
While this slight raise could have been regarded as not having dramatic consequences, another provision of the finance bill is more severe with regard to Notaires’ fees. These consist mainly in taxes other than TVA to the benefit of “Départements” or towns. The Notaire’s actual charge represents approximately 1% while the total fees on a purchase are usually about 7% to 8% of the price.
Starting from 1 March 2014 Départements have been authorised to raise their allocation up to a maximum of 0.70%. This means that the Notaire’s fees will increase accordingly.
Some Départements have already said that they will not apply the rise on 1st March 2014, whereas others have said they will apply the raise. As of now this list is not final. Given this uncertainty the Notaire will not have any other choice than announcing to clients higher fees by way of estimate that may be revised after the sale is completed. This is simply reinforcing to the old Notaire’s habit of announcing a provision.
When Selling Your French Property:
The main area of focus here is capital gains tax. A new regulation has made non-residents liable to pay social charges. A complete relief is achieved after 22 years of ownership with regard to capital gains tax itself, but after 30 years for the social charges.
The relief comes in gradually. This means that any seller should pay attention to the anniversary date when he bought the property, as this governs the total amount of indexation relief that is possible. The new capital gains tax calculation has become very complex and it is highly advisable to seek professional advice in this respect.
In a midst of all these measures there is a silver lining as from 1 January 2014, a non-French resident national of an EU Member State, Norway or Iceland who sells his property in France may be exempt from capital gains tax on the sale of a French property.
The exemption focuses on disposals:
- After December 31 of the fifth year following transfer of tax residence outside France;
- Without time limit, if the seller has free disposition of the property (that is to say that the property is not rented) at least since January 1 of the year preceding the transfer.
The exemption is limited to a single assignment and certain other provisos.
For individual advice, please contact Jean-Paul Vovor here.
We at Cle France - The French Property Network are proud to work in partnership with Ashton KCJ - Legal services. If we think our clients need further legal advice or have a specific legal question that needs solicitor involvement when buying or selling a property in France we can recommend Matthew Cameron and his team for expert advice.
The treatment of trusts under french law
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Until the introduction of a French finance law in 2011, there had been a lot of uncertainty surrounding the French treatment of trusts. Since then, a new regime has brought in different rules regarding the inheritance and gift tax, wealth tax and income tax treatment of trusts.
There is now an obligation for trustees to declare the existence of trusts to the French tax authorities if the settlor or any of the beneficiaries are French resident, or if any trust assets are situated in France. Penalties apply if these obligations are not met, and it was announced at the end of 2013 that these are set to increase. The trust declarations must be filed annually during the trust’s lifetime, and further declarations are required if the trust is modified or wound up.
The new regime has also introduced specific tax rates and rules applying to trusts which vary depending on the circumstances. Discretionary trusts, for example, will be subject to tax at 60% and therefore careful planning is to be advised.
Tax charges will occur either when assets are transferred to beneficiaries or on the death of a settlor, regardless of whether or not the assets remain in trust. This means that there may be tax charges on the death of each generation of beneficiaries.
Consequently, it is important to think carefully before settling any French property on trust, or before including anyone who is a French resident as a beneficiary. Furthermore, should a beneficiary of a trust move to France, it may be appropriate to think about excluding them. For those already affected, there may be possibilities for reducing the impact of the regime; for example, deciding to wind up the trust. There are many factors that will require consideration, however, such as the inheritance tax and capital gains tax implications in both the UK and France.
Should you be the settlor, trustee or beneficiary of any trust with a French connection, it is important to be aware of whether these new rules impact on you. It is also likely that your estate will be affected on your death if you or any of your beneficiaries are French resident, or if you own French property. This is because the law has been drafted in a wide reaching manner so that trusts arising on death under a will or intestacy will be included within the new rules.
One of the most important steps to consider is the preparation of a separate French Will, so as to avoid your estate becoming subject to the French trust regime. If your French property passes under your English Will, it is likely that it will be caught by the trust rules simply by virtue of the fact that the assets will come to be under the control of the executors or administrators. By preparing a separate French Will dealing with the French assets you are therefore likely to simplify matters for your executors and beneficiaries.
For individual advice, please contact Matthew Cameron here.
We at Cle France - The French Property Network are proud to work in partnership with Ashton KCJ - Legal services. If we think our clients need further legal advice or have a specific legal question that needs solicitor involvement when buying or selling a property in France we can recommend Matthew Cameron and his team for expert advice.
Welcome to the Legal Service blog pages
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Bienvenu to the first blog from the French Legal Services team at Ashton KCJ.
Our aim is to produce these regularly, keeping you up to date with any important legal developments.
So, whether you already own a house in France, or are currently looking to buy or sell a French property, our aim is to keep you informed about the issues you need to know.
If you would like to discuss any of the points raised, then do please get in touch.
You can speak to member of the team: Jean-Paul Vovor, who is a French national and holds notaire’s qualifications; Sarah Walker who is an English solicitor with a specialism in French and English inheritance law and tax matters or myself, a solicitor and head of the French team. We are all, of course, fully bilingual.
I hope you find the information interesting, and look forward to any comments you may have.
A bientôt!
Matthew Cameron
Head of French Legal Services.
We at Cle France - The French Property Network are proud to work in partnership with Ashton KCJ - Legal services. If we think our clients need further legal advice or have a specific legal question that needs solicitor involvement when buying or selling a property in France we can recommend Matthew Cameron and his team for expert advice.
French mortgage rates: Staying lower for longer or are they due to fall further?
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Mortgage rates in France have been at historic lows for a number of months. However, the outlook for the next move in interest rates has changed markedly over this period of time.
During the summer, expectations were that French mortgage rates would be rising before the end of 2013. In the early autumn, this was pushed out to early spring 2014, and now – following the release of the latest Eurozone inflation data – there is talk about the possibility of a Eurozone rate cut before the end of the year!
Here we are going to look at the key factors that are likely to influence French mortgage rates over the coming months.
Central bank interventions currently dominate world financial markets. The US Federal Reserve’s $ 85 billion per month bond-buying programme, The Bank of England’s preference for forward guidance and the European Central Bank’s insistence on doing whatever it takes to save the Euro are all having an impact in keeping both interest rates and borrowing costs low.
The most significant of the factors mentioned above is the Fed’s bond-buying programme. Financial markets were fretting over the summer as to when the Fed taper – at which point this buying programme will start to slow down – is likely to kick in. Expectations that this would start towards the end of 2013 caused an Emerging markets sell-off over the summer, but a number of factors have ensured that D-day now looks like it will be pushed back further into 2014.
A number of factors explain this. These include the US budget stalemate and federal shutdown, the nomination of the more dovish Janet Yellen as Ben Bernanke’s replacement at the head of the Federal Reserve, and the very gradual pace of economic recovery in the western world.
Eurozone inflation figures released on Friday 1st November have thrown a further cat among the pigeons, having come in at 0.8% (below market predictions of 1.1%). The fact that the Eurozone inflation target currently sits at 2.00% has prompted some market commentators to suggest that the ECB will need to cut interest rates to stimulate demand and therefore inflation.
You may ask: why would this affect French mortgage rates and borrowing costs?
As the world’s leading economy, the Federal Reserve’s current approach is lowering borrowing costs both in Europe and the US.
Back in the summer, the majority of French lenders were expecting their mortgage rates to start rising by the end of 2013. However, that now looks like it will be delayed until later in 2014, with the possibility that the next move in French mortgage rates could in fact be downwards.
The 3 month Euribor index rate (currently 0.227%) has remained very consistent over recent months, and determines the rates payable on variable rate mortgages in France.
The Tec 10 index, which determines fixed rate mortgage rates in France, had been rising recently and some of the French lenders had started raising their fixed rates. However, since 16th October when the Tec 10 index reached its recent high, the index has fallen over 0.25% to 2.22% as of 1st November.
As the largest introducer of non-resident mortgages to the French lenders, at International Private Finance we are keen to use our unrivalled experience and market knowledge for the benefit of our existing and prospective partners and clients.
Recent discussions with the major non-resident French lenders have indicated that they are hopeful of increasing the number and volume of French mortgages they issue to non-resident borrowers during 2014.
Improving confidence among prospective property buyers, the prospect of French mortgage rates staying lower for longer or even falling, as well as increased appetite and lending criteria starting to filter through from some of the French mortgage lenders, are all positive signs for prospective buyers of French property and provide encouraging signs looking forward.
French Mortgages: to access exclusive rates click here.
Blog submitted by: Joe Wroe of IPF for The French Property Network - Cle France.
