French Buyers' Info

French properties may be classic freehold or leaseback. Leaseback apartments are in larger developments which are professionally managed and rented so you save the VAT. There is another option (which works for both new chalets and apartments), you can buy a classic freehold property and create your own lease and then you can still reclaim the VAT.
 
1. Leaseback
Some larger developments (often with swimming pools, wellness, restaurants and other facilities) have a full professional management service which will rent your apartment out when you are not using it. The property is freehold property but the day you buy it, you agree to “lease it back” to a management company for a minimum period of 9 years. During this time your property is fully managed and maintained by the letting agent but you may block out periods for your own use. The latest leaseback properties offer more flexible owners’ use than previously.   

Buyers are given a tax incentive to rent their apartment.  You do not have to pay the 20% TVA (French VAT) which you usually have to pay for a new classic freehold apartment. The prices in our brochures are therefore shown as net of VAT. Some leasebacks give a guaranteed index-linked rental income; others give you a share of the actual rental income for the weeks your apartment is in the rental pool.
 
2. Classic Freehold
Most properties are classic freehold. This is a second home property and you are not obliged to rent it. You may keep the property for your exclusive use or rent it.  
 
3. DIY Leaseback
If you buy a new “classic freehold” chalet or apartment and you choose to rent it on a commercial basis you can still reclaim the TVA and effectively get a 20% discount off the gross purchase price shown in our brochure. To qualify for the tax incentive given by the French tax office the rental arrangement has to satisfy their rules. You must rent your property to a specialist company (we can introduce you to one) on a long lease. The rental company must provide some basic services to the renters. You can block out periods for your own use so it is quite flexible. Depending on how many weeks you take yourself, the rental company will either offer you a fixed rental for the season or (more likely) pay you for each week it is rented.

The TVA you can reclaim is 20% and this is amortised over 20 years so if you decide after 10 years that you wish to cancel the lease and keep the property for your exclusive use you would pay back half the tax you saved. You can cancel at any time or sell the property on to a buyer who could either carry on the rental arrangement or pay back part of the TVA and keep the property for their own exclusive use. 

• Classic freehold property - there is no obligation to rent your property.
• Leaseback property - you are required to rent this property for a minimum period of 9 years (further details above), but you may block out periods for your own use.

Leaseback schemes are a tax incentive to encourage owners to rent their property and create employment so there are plenty of benefits:

• TVA rebate – the buyer receives a 20% VAT rebate / discount on the gross purchase price
• Guaranteed rental returns – some management companies give you a guaranteed quarterly or bi-annual rental income which is reduced according to a tariff for the weeks you use it yourself
• Low purchase price – typically leaseback properties are in larger developments which are competitively priced
• A trouble-free investment – the management company will organise and fund the maintenance of your property
• Furnishing and storage - leaseback properties are usually sold fully-furnished with a private storage space for the owners to use while their property is rented

You are simply signing a commercial lease (rather than a simple rental mandate) with a management company who carry out key services.

This means you are deemed to be running a commercial enterprise and therefore entitled to recover the VAT.  It is more of a commitment than a rental mandate and the restrictions are ones that don’t affect the normal owner (can't live there for more than 182 days a year and have to make it available for around 8 winter weeks).

No. In France, unlike Switzerland and Austria, there are no restrictions on foreign buyers.

France is one of the most secure countries in the world when it comes to buying off-plan property as buyers’ interests and money are protected.

1. Placing an option
Some developers will block an apartment for you if you have booked flights to visit. When you have decided to buy a specific property most developers allow you to ‘place an option’ on the property thereby taking it off the market for a short period. This provides you with time to prepare your finances and gives the developer time to draw up a reservation contract.

2. Reservation contract
The first step is to sign a reservation contract and pay a deposit, which is usually 5%.
All deposits are held in Escrow by the appointed notary. The notary is a government officer and official third party in every property transaction who ensures safe transfer of ownership.

3. Cooling off period
Once you receive the counter-signed reservation contract you have a 10 day cooling off period during which you can still exercise your right to withdraw. Even after the cooling off period you still have the right to cancel and get your deposit back if your mortgage application is refused.

4. Signature of the notary’s contract (VEFA)
This must be physically signed in France in the notary’s office but most buyers sign a power of attorney in favour of the notary’s secretary or another responsible person to sign on their behalf as this is a formality and they do not want to travel to France just to sign. Depending on your citizenship may need to have your power of attorney ratified by a governmental authority (e.g. the Foreign Office in the UK).  On signature of the VEFA you will need to transfer the funds to the notary.

The notary will send you a sales contract which will include a property plans, energy reports, details of your mortgage and the conditions precedent.

Once approved and signed, the buyer pays the deposit which is usually 10% of the agreed purchase price.

New property - As a tax incentive, to stimulate construction, the purchase costs for a new property are less than for a resale. Your total purchase costs including notary fees, land registration fees and taxes will be approximately 2.5% of the property price. This applies to all new properties under 5 years old. If unsold after 5 years they then count as resales.

Resale property – total purchase costs will be in the range of 6% to 8%.

Registering the mortgage – the notary will charge an additional 1%.

Notaries fees are charged on sliding scale so the price of the property, among other factors, will determine the exact amount you will be charged.

Financial benefits:

• You have the option to save the 20% TVA (French VAT) if you decide to rent the property
• You pay only 2.5% purchase costs (compared to 8% for a resale)
• You don’t pay the Taxe Foncière for the first 2 years

• Consumer laws are good in France so you will get a 10 year guarantee
• You will have low maintenance costs in the early years
• New build are much more energy efficient than older properties so your running costs will be less.
• You can choose the style and finish of your property

The notary can only sign the official sales deed when the developer has a financial guarantee / insurance policy which guarantees to the purchaser that the apartments will be finished and delivered even if the developer were to become bankrupt. This guarantee is known as the ‘financial guarantee of achievement’ (GFA) and the bank which is lending you the money to buy your apartment will insist that the developer has a GFA for the development before they will lend. The insurance company will only give a GFA when the developer has around 50% pre-sales.

Yes. All the deposits paid by the buyers are held by the notary in Escrow and must be returned to the buyer is the developer becomes bankrupt or some other major delay occurs. Only once the GFA has been obtained can the notary sign the title deeds for the transfer of ownership and transfer monies to the developer. 

New build properties will tend to be funded through stage payments laid out in the VEFA. Commonly the schedule will look as below.

• 5% paid as the initial deposit
• 30% of the total price when the foundations have been laid
• 35% of the total price when the property is weatherproof
• 25% of the total price when construction is complete
• 5 %of the total price on receipt of the keys

If you are taking a mortgage, you pay the first instalments and then bank will pay the remaining instalments. When you receive the keys you have one month in which to take possession of your property and report any faults to the developer.

If you are buying a sale and leaseback property, the developer will organise the TVA (French VAT) rebate so you only pay the net price and have no paper work.

If you create your own commercial lease then you can either reclaim the TVA each time you make a stage payment or wait until you have paid the full price and reclaim the total TVA in one claim. These claims are usually processed in 2 or 3 months.

Simply put, there are two ways you can get a VAT rebate on a ski property purchase.

The first is a “pre-packaged” leaseback where you have an ex-VAT purchase price, guaranteed return and the option for a few different fixed amounts of personal usage per year. You own the freehold although you will have a lease with the management company and their are restrictions on usage and decoration of the apartments amongst other things. 

The second approach - which is increasingly popular at the moment - is to buy a classic freehold property, decorate it as you wish and have it professionally managed when you aren’t using it personally. You still benefit from the VAT rebate this way except this time it comes back to you in a lump sum.

As an owner you block the weeks that you want and the management company manage the rest and are motivated to maximise occupancy of the available weeks as they take a % based on what they achieve (typically 25% to cover management and marketing of the property).
 
For more information or support with this, please contact us.

• Sign a commercial lease agreement with a management company
• The management company have to carry out a minimum of 3 key services (cleaning, linen exchange, key collection, breakfast etc)
• You have to make the apartment available to rent for at least 9 winter and 3 summer weeks
• You can’t live in the property for more than 182 days a year 

If you intend to rent your property then there are tax advantages if you take a mortgage as you may offset the interest against rental income (which will no longer be permitted for UK property from April 2017). As your rental income will be in Euros you do not have any currency exposure if you intend paying your mortgage from rental income.

French banks will lend up to 85% of the purchase price for a classic freehold, 80% for a leaseback to EU citizens. Non EU citizens are limited to 70% for sale and leaseback. US citizens will find it difficult, though not impossible, to borrow from Austrian or Swiss banks, but French banks will lend up to 70% on a sale and leaseback and more on a classic freehold, making France their best option in the Alps.

The repayment period is usually 15 or 20 years.

We are able to recommend mortgage brokers which specialise in French finance and deal with all the major French banks.

Whilst in many countries, mortgages are granted on the basis of a multiple of your earnings, this is not the case in France. French law does not allow lenders in France to offer mortgages if the repayments on that mortgage amount to more than 30% of the borrower’s monthly income (joint income for joint mortgages). This 30% includes any existing mortgage you pay for your principal residence.

The percentage level of the loan (LTV) will be reduced but if you have a high and stable income, the lending criteria can be relaxed. It may be necessary to consider re-mortgaging your principal residence to release equity.

French banks are able to offer fixed and variable rates. Rates vary continually but currently they are at almost the lowest level they have been for the last ten years and long term fixed rates are very attractive.

The property must be paid for in Euros.

The best way to transfer money from other currencies into Euros would be to use a dedicated foreign exchange broker. The benefit of working with a specialist foreign exchange partner is that they offer better rates than the main banks and, as they are specialists, they can advise you on buying currency forward. 

We are happy to recommend a number of good foreign exchange brokers with whom we have worked for many years.

Yes, there are no restrictions in France. You should take expert advice though as there are several French options which include a SCI, SARL, EURLs, and SARL de famille.

The most commonly used vehicle to purchase and hold French residential property is a SCI, a ‘société civile immobilière’. However, running a furnished property is a commercial activity so as an SCI does not allow you to “depreciate” the asset, a ‘SARL” should be used. A “Sarl de Famille’ would a more suitable method of obtaining joint ownership. 

• Purchase a property with multiple partners - there must be at least 2 partners (related or unrelated) but there is no minimum contribution
• Tax-free ownership transfers – ownership can be transferred tax free (to children or grandchildren, for example) by a transfer of shares 
• Tax efficiency – 10% reduction in the taxable amount of your property for Wealth Tax and negation of Inheritance Tax if you plan to transfer ownership 
• No impact on mortgage application – SCIs and SARLs have a transparent structure so mortgage application will be treated as if you were simply applying in your own name

The set up costs for an SCI start at around €1,000 and you will be required to pay a yearly maintenance fee of around €800 as well as formalities such as holding an Annual General Meeting. 

Across the French, Swiss and Austrian Alps, rental yields tend to vary between 3 and 5% depending on a variety of factors such as the resort, the location of the property within resort (ski in, ski out properties demand a premium), the property itself and the facilities. 

A common misconception is that if you buy a property in a dual season resort you will generate a greater rental income. While your property will certainly benefit from rental throughout the year rather than just over the winter months, properties in dual season resorts tend to generate a similar rental income to properties in resorts where winter is the main focus. The two main reasons for this are that rental rates are significantly lower in the summer season and many dual season resorts are at a lower altitude meaning they have a shorter winter season.

Yes, but not many. Some of the larger developments in France offer a guaranteed rental income. 

Some will also pay all your running costs including the service charges and will pay a guaranteed income which is net of all these expenses so you know exactly what you will get in your pocket every year.

Better still these rent guarantees are usually for the length of the lease (up to 20 years) and are  index-linked so the rent will increase by up to 3% annually (more information at www.insee.fr). 

Owning a leaseback property incurs minimal on-going costs. Most management companies pay the taxe d’habitation and the service charges out of your rental income. Your rental income is net of all costs apart from the taxe foncière (typically around 8 euros per m2 per year). 

The ‘charge de co-propriete’ (service charge) is typically €10-20 per m2 per year.

If the property has facilities such as a swimming pool and a wellness the charge may be at the higher end of the range. 

There is no significant difference between leaseback and classic freehold properties in terms of appreciation of value. If you buy a well-located property with good facilities it will always be in demand.

No, you may sell your French property whenever you like to whoever you wish.

There are no penalties for selling a leaseback property and you do not have to repay any VAT. The buyer will purchase the freehold from you and will step into your shoes and continue the lease to the management company.

If you created your own sale and leaseback then when you sell the property the buyer has a choice; either to carry on the rental arrangement or to pay back part of the VAT and keep the property for their own exclusive use. 

The tax you will pay is dependent on a number of factors but most importantly your country of residence.

If you are resident in any country outside the EU you will be charged two taxes:

- capital gains tax (Impôt sur le Revenu) And
- social tax (Prelevements Sociaux).

If you are resident in a country which is a member state of the EU (including EEA and Switzerland) then thanks to the intervention of the the Court of Justice of the European Union you will only have to pay the capital gains tax.

Although the French tax office also tried to charge EU citizens the Social tax this was ruled illegal. In the "de Ruyter" decision of February 2015 the Court of Justice of the EU ruled that the French administration could not charge EU citizens a social tax as those citizens were already paying social taxes in the country where they are living.

The basic rate of capital gains tax (payable by everyone) is charged on the taxable profit at the rate of 19%

The basic rate of the social tax (payable only by those residing outside the EU) is charged on the taxable profite at the rate of 17.2%

When calculating the taxable profit you are permitted to deduct the costs of buying and selling the property and any capital expenditure on major improvements to the property

Both types of tax are calculated on a reducing scale so the longer you have owned the property the less tax you will pay.

Capital gains tax (Impôt sur le Revenu) on the sale of a property in France is charged at the full rate of 19% if you sell within 5 years but it reduces down to 0 after 22 years of ownership. After 5 years there is a discount of 6% for each year, except for the final 22nd year which has a 4% discount. Example; the profit tax on a property owned for 10 years would be reduced by 30% (5 x 6%).

The social charges (Prelevements Sociaux) also reduces from the basic rate of 17.2% but over a longer period of time, reducing to 0 after 30 years. Again no discount is given if you sell within 5 years. Thereafter the discount is 1.65% between years 6 and 21, 1.60% for the 22nd year and then 9% per year between the 23rd to 30th year.

If you form a limited company it is possible to reduce your exposure to the taxes charged on sale of a property.

Inheritance Tax. In France it is the beneficiary who pays the tax rather than the estate and the tax rates and allowances vary according to the deceased’s relationship to the heir.

There is no inheritance tax payable between spouses or couples with a “Pacte Civile de Solidarité”

Each child is entitled to a tax free allowance of €100,000 from a parent and there are large tax bands at both 20% and 30%. Therefore, for children, French inheritance tax is perfectly reasonable and for a large estate, where assets are left to children, normally the inheritance tax bill is considerably lower than in the UK. Also, France offers more opportunities for reducing tax. Inheritance Tax can be reduced or completely avoided by buying in the name of a company (SCI).

When the value of assets passes the €100,000 threshold the rate of Inheritance Tax is banded depending on the value of additional assets in France.
 

There are two local annual taxes, the ‘taxe d’habitation’ and the ‘taxe foncière which are both are levied in October / November. These taxes are based on the cadastral value of the property. The rates of tax are set by the région, the département and the commune and vary from one district to another.

The taxe foncière and taxe d’habitation are both typically around 10 - 20 euros per m2 per year each. If you are leasing your property to a professional management company (see more detail later) the management company usually will pay the taxe d’habitation so you only pay only the taxe foncière. When you buy a new property you do not pay the taxe foncière for the first two years. 

This tax has a fearful reputation but, as the owner of a property in the French Alps, you are unlikely to be liable to pay.

Non-residents with a property in France are only liable to pay wealth tax on physical assets located in France. Purely financial investments are therefore excluded.

The tax is payable when the taxable household net real estate wealth exceeds €1.3 million, when it is then applied on net assets above €800,000.

So If you borrowed 80% to buy your property, the wealth tax will only be an issue if your property is valued at €4,000,000 or more – i.e. when the equity on the property equals or exceeds €800,000.

You can reduce your liability to the wealth tax by using a company structure such as an SCI (Societe Civile Immobiliere).

The tax is payable when the taxable household net real estate wealth exceeds €1.3 million.
Where the wealth is over this threshold, the rates below apply on each band.   

Wealth tax rates are progressive starting at 0.5% to a maximum of 1.5% of the equity.
 

Yes, due to the importance of tourism to the French economy the French tax office give much more generous tax incentives for renting your French property than the Inland Revenue would allow for a property in the UK. If your accountant claims all the allowances you should declare only a very small “paper profit” and thus pay no tax in France.  You can offset these:

• Purchase costs  (the notary fees when you bought)
• Land taxes
• Interest on your mortgage
• Accountant’s  fees
• A “maintenance” trip (to check your property)
• Property Depreciation - As 20% of your property value in France is in the land, the remaining 80% can be amortised (‘on paper’) by either 4% per annum over 25 years or 3.33% over 30 years even though the property is actually appreciating in value!
• Furniture Depreciation – the value be amortised over 5 or 10 years.

France has dual taxation treaties with most countries so you do not pay the tax twice and if you are liable to taxation in your country of residence you will be credited with any tax paid in France.

Non-residents pay French tax on the taxable income at a flat rate of 20%.

As explained above, you may make a lot of deductions before calculating your actual taxable income or if your gross rental income (i.e. the total rental income before deductions) from furnished lettings is less than €32,900, the taxable income may be calculated under the Micro-BIC, a simplified deduction scheme that simply taxes 50% of the gross income (i.e. 50% of the gross rental income – so the total income with no deductions at all – is automatically deducted in place of actual expenses).

No expenses need be demonstrated, no accounts are required and no separate tax forms for the business need be prepared. The main drawback of this regime is that it always shows a fixed taxable profit i.e. it can never show a lower net profit or a loss.

Any property owner in France is entitled to a resident permit. It doesn’t allow you to work or to benefit from the social system but you can come and go as you please. After 10 years you can ask for citizenship or in 5 years if you justify it by a certain level of investment.
 
Once you have purchased the property, you have to enter France on a 90 days’ tourist Schengen visa which is easy to gain when you become an owner. Next you must ask the local prefecture (where your property is situated) for a residency card next to the prefecture,
 
It is fairly straight forward but there is a fair amount of paperwork to fill in as with any administration in France but we can put you in contact with experts who can help.