purchase, sale, capital gain, inheritance
Buying and selling real estate is an important part of moving to France. Likewise, if you are returning to the UK or think it is time to downsize. I am frequently asked questions about tax implications.
Is the buying process simple in France?
The buying process in France is quite standardized, which makes it less stressful.
Your immovable (real estate agent) and notary (notary) will contribute to the smooth running of everything, from the negotiation to the drafting of the sales agreement (compromis de vente), the payment of the deposit and the signing of the deed of sale, which gives you legal ownership.
What should I think about before buying, selling or downsizing a property?
The most common problem is underestimating costs.
This becomes more problematic when selling one property to buy another. The combined costs of two real estate transactions can significantly reduce your budget.
Property is often the most expensive purchase we make, so I recommend caution.
Make sure the property is what will work for you in the long term (and not just a place you loved on vacation).
Research the different methods of ownership.
These can impact your estate planning options as well as your estate tax obligations, so you need to get it right from the start.
France also has different types of marriage contracts, which can affect ownership of assets and, therefore, inheritance and taxation.
How does capital gains tax work in France?
When you sell your principal residence, any gain is exempt from tax in France and the UK.
However, if you are selling property that is not your principal private residence (main house), there are major differences between the two systems.
In France, you benefit from a reduction according to the number of years of possession of this second home.
For the tax element, after the first five years of ownership, your realized gain is reduced by 6% per year, then by 4% in the 22nd year, giving you a total exemption from CGT after 22 years.
Payroll taxes take longer.
From the sixth year, your liability decreases by 1.65% per year, then accelerates to 9% from the 23rd to the 30th year, after which you are completely exonerated.
What’s happening with payroll taxes since Brexit?
This year, the French authorities confirmed that after re-analysis of the Brexit withdrawal agreement and the law on social charges, British pensioners continue to be exempt from the CRDS (contribution for the reimbursement of the social debt) and CSG (widespread social contribution) social charges on rental income, capital gains and investment income.
They only pay the PoS (solidarity levy), which reduces total payroll taxes from 17.2% to 7.5%.
This underlines the importance of getting an S1 (available if you are entitled to a UK state pension).
Having not contributed to the French health system, your membership is effectively funded by the United Kingdom via the S1.
This is a bonus for UK nationals benefiting from a pension in France as they can benefit from tax savings on dividends, interest and capital gains on stocks and shares.
This is also good news for UK residents selling or letting French property.
Should I be concerned about wealth tax?
Since the first election of President Macron, the wealth tax only applies to real estate.
The zero rate threshold has remained at 1.3 million euros for over 10 years, so although it may seem high, when you take housing inflation into account, it is much lower than it was. in 2012.
Wealth tax applies to all of your worldwide real estate assets if you are resident in France.
If you are buying investment property or keeping property in the UK for rental income, be aware of this additional annual tax liability.
Also consider the heirs residing in France. If you leave the property to them and they already own real estate, will that push them into the wealth tax net?
In the past, borrowing money against your property reduced its equity, helping you avoid wealth tax.
This loophole has now been closed, so you could end up paying both bank interest and wealth tax.
Can I reduce the inheritance tax of my heirs?
When a French resident dies, French inheritance tax is due on his worldwide estate.
Each beneficiary pays taxes on what he receives but there are exceptions and allowances: transfers to spouses/pacsés on death are exempt; the children receive an allowance of €100,000; and there are some small allowances for more distant relatives.
Because property is illiquid, there is less flexibility to schedule or reduce inheritance tax.
There are more opportunities to reduce your heirs’ tax bill with capital sums.
For example, holding investment assets in an insurance life is an effective way to remove or substantially reduce inheritance tax, especially for distant or unrelated individuals who pay 60% tax.
Does owning a property in the UK present any additional problems these days?
UK-based assets remain exposed to UK rules, including the freeze applied to thresholds and allowances in recent years.
And as each year passes, the 2015 reform that ended the non-resident capital gains loophole collects more of your UK property gain.
The longer you own a property in the UK and the more it increases in value, the more UK capital gains tax you pay when you sell it.
UK rental income is subject to UK income tax.
Non-residents are still currently receiving UK personal allowances, but we cannot guarantee that this will continue indefinitely.
Finally, on your death, your UK assets are subject to UK inheritance tax.
Beneficiaries do not pay tax twice, but will pay the higher rate.
You can think of your residence as a home rather than an investment and not be overly concerned about taxes, but if you own other property, tax issues become very relevant.
And succession is always important. Understanding how it all works will help you take steps now to make life easier and cheaper for future heirs.
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