Buying and selling your French property – what you need to know
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Buying or selling a property in France this year? From contracts to covid, Charlotte Macdonald and Bryony Anning of Stone King LLP’s International and Cross-Border team discuss everything you need to know in 2021
If you are buying or selling property in France, you will first need to instruct a notaire – a French lawyer and public officer. It is not possible to buy or sell a property in France without the assistance of a notaire.
Your notaire’s key tasks include undertaking property searches, preparing the contracts, paying property taxes and registering the new ownership at the French land registry.
Rather than in the UK, where a solicitor will act only for the buyer or for the seller in a transaction, in France the notaire acts for the transaction itself as a neutral public official. This means that often there will be only one notaire working on the transaction. It is also possible for the buyer and seller to each instruct their own notaire. In these cases, the notaires will work together throughout the transaction.
British individuals are advised to also instruct a cross-border solicitor. In addition to assisting with the transaction, your solicitor will be able to advise on the UK tax and inheritance consequences of the transaction (this is outside the scope of the notaire’s work).
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There are a two main types of preliminary contract in France. The most common is the compromis de vente.
The compromis de vente is the document under which the buyer commits to buy the property and the seller commits to sell it. It contains the key terms of sale and the intended completion date. Once the compromis de vente has been signed by both parties (or their attorneys), there follows a 10-day cooling off period in which the buyer can withdraw from the transaction without consequence.
At the end of the 10-days, the buyer pays a deposit by bank transfer to the notaire. The deposit is generally 10% of the sale price. At this point, the terms of the contract are binding. If either party withdraws from the sale, the penalty is the deposit, or a sum equal to the deposit.
Another type of preliminary contract is the promesse de vente. This is most commonly used in Paris property transactions.
The promesse de vente is a one-sided contract in which the seller commits to sell the property and the buyer effectively acquires an option to buy the property. It works similarly to the compromis de vente – the buyer pays a deposit, after which there follows a 10-day cooling off period. If at the end of the cooling off period the buyer decides not to go ahead, the seller may keep the deposit.
The acte de vente (final contract) confirms the terms in the preliminary contract and is usually signed two to four months after the preliminary contract. In advance of signing the final contract, the buyer will transfer the balance of funds and the notaire’s fees to the notaire.
The final contract is usually signed in the notaire’s office, in the attendance of the buyer and the seller (or their attorneys). Parties may choose to bring along an English translator and solicitor. After signing, the notaire will provide the buyer with an attestation de propriété (certificate of ownership) – your notaire will keep the original for registration at the French land registry.
In France, the sale proceeds are not normally transferred to the seller immediately – this may take a few weeks. This is an important consideration, particularly if you need the proceeds to put towards the purchase of another property. The reason for the delay is that the notaire must carry out a capital gains tax calculation and arrange for the payment of the tax. Only after this is completed can the notaire release the funds to the seller.
These are some of the additional costs it is important for parties to budget for:
The frais de notaire (notaire’s fees) are paid by the buyer and are a combination of taxes, expenses and the notaire’s fee. The amount will depend on the value, location and type of the particular property. You can use the online calculator to work out the likely fees at: immobilier.notaires.fr/en/fee-calculator.
Estate agent fees
The honoraires (estate agent’s fees) may be more expensive than you are expecting. Fees are usually charged at between 5-10% of the sale price, compared to 1-2% in the UK. Unlike the notaire’s fees, estate agents’ fees are not regulated in France and so it is often possible to negotiate down your rate.
Make sure that you have checked whether the fees are included in the price – if they are, you will notice the acronym ‘HAI’ (honoraires d’agence inclus) beside the listed price.
The estate agent’s fees can be paid for by the seller, the buyer or split between both parties. Who bears responsibility should be established at the outset of the matter and is often stipulated in the property advertisement.
If the fees are paid by the buyer, this will be reflected in a reduction of the notaire’s fees (which generally means a stamp duty tax saving). In addition, the seller may be more inclined to negotiate on the sale price.
The diagnostics (searches and certificates) are generally paid by the seller. Searches include: asbestos, lead in the paintwork, termites, gas, electricity, energy performance, dry rot (in some areas of France) and natural risks.
The buyer may decide to instruct a surveyor or an architect to provide a more comprehensive report on the condition of the building – the diagnostic technique immobilier. Whilst this is common practice in the UK, this is not a legal requirement in France.
This survey is paid for by the buyer and should be undertaken before the preliminary contract is signed. If there is no time to complete the survey before signing the preliminary contract, the buyer should consider including a clause suspensive (conditional clause) to reflect this.
If you are not a fluent French speaker, you may be required to sign English translations of the key property contracts, to ensure that you fully understand the terms. The cost of translations is not included in the notaire’s fees. If both the buyer and seller are English, it may be a good idea to split this cost.
Taxe foncière (ownership tax) is paid by the owner of the property and it usually split pro-rata between the buyer and the seller.
Taxe d’habitation (residence tax) is similar to UK council tax. It is paid by the occupant of the property on 1st January each year and so this can often influence the sale price for transactions taking place over the winter. The seller benefits from a December completion, whereas the buyer will prefer January. This tax is gradually being phased out, but is still payable on many French properties.
Imp?t sur la fortune immobilière (wealth tax) is an additional tax payable on properties valued at over €1.3 million. It will apply to your worldwide assets if you are French resident; if you are non-resident, it will only apply to your French assets.
TVA (VAT) applies to the purchase of off-plan properties and properties under five years old.
It is important to consider the costs of currency exchange and bank transfer fees. If you are considering taking out a long-term mortgage, it may be worth instructing a currency broker.
If you are buying a property in France to rent out, you will need to pay impôt sur le revenue (income tax).
You will be liable to pay French income tax whether you are resident in France or the UK. We have discussed double taxation in further detail below. You will need to submit both UK and French tax returns – don’t forget that the French tax year runs from 1 January to 31 December.
Capital Gains Tax (CGT)
Impôt sur les plus-values (capital gains tax) is chargeable on the profit realised from selling your second home.
CGT it is made up of two elements: ‘true’ CGT and a social charge element. There are taper reliefs available after a certain time of ownership which gradually reduce these rates in France to zero.
Double taxation If you are UK resident, HMRC will tax your global income and capital gains – including those realised from renting and/or selling your French property. This means that you may end up paying both French and UK income and CGT.
Your cross-border solicitor will be able to advise on the Anglo/French Double Taxation Convention, which if applied correctly helps to prevent or mitigate double taxation by allowing for some or all the tax paid in France to be offset against tax paid in the UK.
Travel during the Covid pandemic is difficult. This means that it may not be possible to visit the property for a viewing and/or to be physically present for the signing of the key property contracts.
The procuration (power of attorney) is vital to progressing property transactions at the moment. The power of attorney permits someone else to sign legal documents on your behalf, usually an employee from the notaire’s office. It is prepared by the notaire and is likely to be the only document you will need to physically sign.
The signing of your power of attorney must be witnessed. Your notaire will stipulate who needs to witness your signature – this will be either the notaire, or a UK notary public or solicitor. In light of Covid, some notaires are able to witness their client’s signatures via webcam – it is worth asking your notaire whether they are equipped to offer this service. If not, you will likely need to book an appointment with your local notary public or solicitor in the UK.
These are the key post-Brexit changes applicable to UK residents selling their French property:
Capital Gains Tax
Prior to Brexit, a UK resident was able to receive a discount on the amount of the CGT social charge element they paid. This discount is no longer available now that Britain has left the EU.
Following Brexit, sellers who are UK resident are now (in the majority of cases) required to appoint a représentant fiscal (fiscal representative), who is responsible for calculating and paying CGT and undertakes to be liable for any miscalculation and/or tax adjustments occurring in the three years following sale.
The fees charged by fiscal representatives can be high – we have found them to be in the region of 0.4-1% of the value of the property. This is therefore an important (and possibly expensive) consideration for UK resident individuals selling second homes in France.
For more information please contact the international and cross-border team at Stone King LLP, Charlotte Macdonald, Dan Harris, Raquel Ugalde and Emma Seaton, either by calling +44(0)1225 337599 or by emailing email@example.com.