What can go wrong in France - and does.


Many people buy in France without any professional advice whatsoever and experience no problems at all. However, some cases can go badly wrong when a little planning could easily have avoided not only the problems encountered, but also could have put the buyer in a better position from the beginning.

The following are illustrations of problems which can arise:

1.  Q bought a French property through a UK company, itself partially owned by a Bermuda company. He did not realise that such a company is obliged to make a declaration to the French tax authority, or face an annual tax of 3% of the value of its holdings. Such a declaration may well have revealed the Bermudan ownership, which could have resulted in a tax on deemed (not actual) income. There are several other adverse effects of owning through a non-French corporate structure which cannot necessarily be surmounted after the property is bought.
Lesson: Do not buy through a non-French company unless you have been specifically advised to do so by a competent advisor.

2. C left for France without registering her departure from the UK or her arrival in France with the relevant Taxmen. She arrived in France in November 2002 and should therefore have made a 2002 tax return in March 2003. Later that year she was surprised to receive a letter from the French taxman asking where her tax return was (in other situations people have been asked to visit their local taxman). She may now have a liability to French income tax and certainly has undesirable bureaucratic difficulties to deal with.
Lesson: Control your move to France by registering both your departure and arrival and making sure you effect the correct actions in each country.

3.  H bought a French property in his own name without fully appreciating that upon sale he would be liable for capital gains tax not only in France but also in the UK (he remained UK resident) & France at 16% and the UK at 40%. He might have avoided the UK liability by nominating the French property as his principal private residence & with little to no loss in the UK.
Lesson: Investigate nominating your French property before the statutory deadline expires.

4.  M bought a large French property intending to convert it into a small B&B. Unfortunately, she failed to ensure that the property's electricity connection could cope with the increase in demand due to the greater number of people in occupation. It could not. She now faces suing the seller for alleged misrepresentation - always a bad idea in France even if you have a cast iron case - or selling, possible at a capital loss and certainly when the incidental costs are taken into account.
Lesson: Never rush in to a French property purchase, especially if you are intending to change the property use and always make pre-contractual enquiries, even if the estate agent(s).

5.  L and R, with a complicated family history, should have bought their property en tontine but did not take advice and so bought in a regular indivision. They now faces the invidious choice of either reconveying the property to themselves, superimposing a tontine (if possible) or accepting that if one of them dies while they own the property, the French law of forced succession will not achieve their aims and may leave the survivor in a difficult situation.
Lesson: Always take advice on property ownership structure.

6.  W & N live in a foreign country which France regards as a tax haven, such that it imposes tax on deemed income (irrespective of whether there is any actual income) in respect of their French property. They were initially unaware of this. Like many French taxes, if this went unpaid it is likely to be deducted by the notaire upon sale of the property, when he seeks clearance from the local tax office.
Lesson: Take advice on the consequences of ownership if you live in a tax haven (i.e. a country with which France does not have a double tax treaty).

The above are just a few examples. We are currently hearing about a Europe-wide operation being led by France and Spain to match local tax records with lists of properties available for holiday letting. Eventually, details will be passed to the UK taxman under the Double Tax Treaty mutual cooperation and assistance clauses. We can therefore expect to hear more "what went wrong" stories as this campaign gathers steam, but we would much rather help you avoid them in the first place!


Please note that taxation and property are complex subjects and you should not take or refrain from taking any step without full independent advice on the particular facts of your case. The content of this article is of a general nature and no liability is accepted in connection with it.

by Saul Brownstein, French tax and property solicitor at Sykes Anderson LLP solicitors

Sykes Anderson LLP can advise on how to avoid the above situations !

Please contact us at [email protected] or on 020 7398 4700.
http://www.sykesanderson.com

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What can go wrong in France - and does.
Many people buy in France without any professional advice whatsoever and experience no problems at all. However, some cases can go badly wrong when a little planning could...

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