David Anderson and Graeme Perry answer frequently asked questions about buying French property with self-invested personal pensions
Q I have a SIPP and would like to invest in property. Is this possible?
A It is possible for your SIPP to invest in commercial property. Holding residential property in a SIPP incurs heavy tax charges so SIPP trustees will refuse to be involved with any such acquisitions. It is possible though to acquire land for residential development.
Q Does France have a similar system to SIPPs?
A No, there is not the same private pension structure in France. However, the introduction of the fiducie system in France has made it straightforward for SIPP trustees to invest directly in French assets in a similar way to investing in English assets.
Q This sounds promising. What is the fiducie system?
A It was, for SIPP purposes, first introduced into French law in 2010. It permits individuals to transfer their assets into a fiducie in a manner similar to a trust. The settlor or the trustees can also be the beneficiary. The settlor is allowed to continue using assets after settling the assets into the trust.
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Q How do I go about putting this in place?
A The fiducie relationship has to be expressly created either by law or by a contract. It is necessary for this contract (the trust deed) to include a number of aspects including which assets are being put into the trust, the duration of the trust relationship (which may be a maximum of 99 years), the identity of the settlor, trustees and beneficiaries, and the object of the trustees. Once the deed is agreed, it cannot be revoked without the beneficiary’s agreement or a court order. Each trust arrangement will need to be registered with the French National Register. Therefore, pension trustees may well end up having several fiducie contracts registered. An important difference to English law is that the governing contract (or the trust deed) must be registered on the National Register of Fiducies within one month of the fiducie being created. In most cases, the English SIPP trust deed will tick all the French boxes to be registered.
Q Will the governing documentation for my SIPP be sufficient for these purposes?
A Provided that the English trust deed has provisions that come within the requirements of the French Civil Code it will be accepted without any further documentation being required. If French real estate or land is to be settled, the contract will need to be notarised. There will be practical steps that the notaire has to follow in these circumstances. Although there are restrictions on who can act as a fiducie, this should not be a problem when using a SIPP as pension trustees will come within the definition of those permitted to fulfil this role.
Q What will the tax consequences be?
A There must be tax neutrality when assets are held by a fiducie. This means that the settlor will remain the taxable person rather than the fiducie. This is helpful in comparison with the previous position where French tax authorities would consider the trustees to be the owner of all property they hold. They would then be taxed in a manner similar to a company, which tended to be disadvantageous when compared with the taxation of individuals. Although the settlor continues to be viewed as the taxable person, for other purposes any settled assets are considered to have been transferred out of their ownership. This should mean that assets are ring-fenced from bankruptcy proceedings. Steps will need to be taken to avoid any issues with French forced heirship rules.
Q Is it now possible to obtain funding for these structures?
A Yes. Fiducies can borrow in their capacity as a trustee and charge any assets that the settlor has put into trust. Banks that are lending to fiducies are still restricted in France and are more interested in high-value transactions, although this is changing. There is no restriction on the level of gearing, though for UK reasons limits may apply.
Q What about buying a leaseback property with my SIPP? I understand these are viewed as commercial.
A They will normally be commercial and can be bought by a SIPP. Each one will have to be checked by your SIPP provider who must be satisfied whether or not it is residential. If it is essentially a hotel suite then it will be acceptable as a SIPP investment. If it is viewed as a residential flat it will not. There is no definitive guidance on this from HMRC so it turns on the SIPP provider’s view. There is, however, a likelihood that HMRC will in the near future make its position clearer on leasebacks.
Q Do any other countries have pension arrangements similar to the UK?
A Ireland has a similar system and its equivalent of personal pension funds are now well-established buyers of French leasebacks. The tight restrictions allowing investment only in commercial property do not apply. The biggest leaseback company in France, Pierre et Vacances, has Irish pension fund information on its website.
Q This seems very positive. What are the first steps I should take?
A Ensure that your pension provider is willing to consider foreign assets. If so, you will need to identify the property, which will need to qualify as commercial. Your provider will have to take a view on whether the property should be considered commercial. When you have the property lined up, you can move forward with having the trust deed registered in France. You will also need a notaire who is comfortable with the fiducie system.
David Anderson is a solicitor and chartered tax adviser and Graeme Perry is a solicitor with Sykes Anderson LLP