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Ownership method
The first consideration
is ownership method. There are three main methods of owning
French property (personal, French company or other company) with
variations in each. There are advantages and disadvantages with all
methods that vary according to whether the owner is French resident
or not.
French succession law can force assets to devolve to one’s own
children, including those of earlier marriages and illegitimate
ones, in preference to the surviving spouse (even for non-French
residents with French property). Worse still, French inheritance tax
(called succession tax) is payable even on assets left by one spouse
to the other, whereas in the UK such assets are generally tax free.
The various ownership methods help address these issues.
If you go to live in France it is also possible to change the type
of marriage contract you have since this can affect the French
succession tax liability. Non-married partners (whether same or
opposite-sex) may want to register a PACS agreement, which gives
some tax advantages.
French succession tax
This is a tax on
lifetime gifts and inheritances. The tax rates vary from 5% to 60%,
depending on the value of the assets being passed and the
relationship between the donor and recipient. Various allowances and
exemptions apply. The tax is calculated and paid by the individual
beneficiary and not by the estate as in the UK.
If you move to France and become resident there, your worldwide
estate will be liable to French succession tax; only UK real estate
will be taxable in the UK. If you remain a UK resident, French tax
will only be due on real estate in France, but this will probably
also be subject to UK inheritance tax. In such cases, the tax paid
abroad can be offset against tax due where you were resident.
Wealth tax
French wealth tax has
no UK equivalent. Individuals resident in France are taxed on their
worldwide assets, and non-residents are taxed on net French assets
only (including shares in a company that owns real estate in
France), on the value of their assets as at 1st January each year.
The tax is based on the wealth of the household, including spouses
and infant children.
Assets under €760,000 (in 2007) are not liable for wealth tax. After
this threshold, the tax rate is 0.55%, rising progressively to 1.8%
for assets over €15,810,000.
A new double tax treaty should soon come into force which will
provide substantial wealth tax relief for UK nationals for the first
five years after they move to France.
Income tax
If you become tax resident in France (which you will do if it’s your
main residence or principle place of abode) you will be liable to
French income tax on your worldwide income. Tax rates vary from 0%
to 40%, though there are fixed rates for bank and bond interest.
French residents also pay social charges (another form of income
tax), from 7.1% to 11% depending on the type of income. This is also
due on gains.
Non-residents will be liable for French taxes on any income
generated in France, such as rental income (but not bank interest,
which is only taxable in the UK if paid to a UK resident). There are
various regimes under which French rental income can be taxed, so if
you are thinking of renting out your property you need to look into
these quite carefully.
Capital gains tax
CGT at 16% will be due
on the property whether you move to France or not (if EU resident;
if not, at 33.3%). In calculating the gain on property, there is
a 10% reduction in the taxable gain for each complete year of
ownership after five years. So after 15 years there is no tax
payable.
Local Property Taxes
There are also local property taxes to take into consideration. They
are called taxe d’habitation and taxe foncière.
Taxe d’habitation is an annual tax and is usually paid by whoever
occupies the property on 1st January each year. Taxe foncière is
paid by the owner of the property, irrespective of who occupies it.
The tax is divided into two parts: tax on the buildings and tax on
the land.
This is a summary of complex issues and you will need more detailed
information in order to make informed choices. Ideally you should
get your tax planning right from the outset because fixing mistakes
at a later date may be costly or impossible. This is particularly
true when it comes to selecting the method of ownership for your
property.
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