Club Clé France: Buying or Selling a second home property in France
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Matthew Cameron and his team for expert advice.
Article supplied by Ashton KCJ - Legal Services.
Whether your second property is at home or abroad, careful planning will usually save tax of one sort or another. If you are selling a property which is not your main home (Principal Private Residence) then your key issue is likely to be Capital Gains Tax (CGT). If you are buying another property, reviewing your Will and checking your Inheritance Tax (IHT) position are likely to be key. The most important thing is to look at your overall position and all the tax implications together and then plan accordingly. This is where we can help.
Capital Gains Tax Issues:
When you sell a property which is not your main home, you may be liable to pay CGT at 18% or 28% on the gains. How much you have to pay will depend on various factors, including:
• If and when you have lived in the property.
• Whether you have made gains on other taxable investments in the same financial year that the house is being sold.
• Whether you are a higher or basic rate taxpayer.
If you are buying a second property:
By taking advice now you may be able to plan your ownership in a way that will mean you pay little or no tax if you later decide to sell.
Principal Private Residence (PPR) relief means that no CGT is payable on any gains arising when someone sells the home in which they live. If you have more than one property you can elect which property is your main residence if you have occupied both at some time. The election should be made within two years of having bought the second property.
The relief generally applies to the period during which you have occupied the property as your main residence, but the tax rules state that the last three years of ownership count as a period of residence even though the owner may not have been living there. So you can rent out one of your properties for up to three years before selling it without losing this valuable relief.
If you are selling:
Your options for saving CGT will depend on the timescales involved. If you already have a buyer lined up but have never lived in the property then it may be too late for tax planning.
You usually have to be able to demonstrate that you have lived in the property, and it has been your PPR, for at least six months but preferably a year before you are able to sell without incurring any CGT at all.
If you are not sure of your position, you will need someone to advise you on what your liability will be and help you to ensure that you don’t pay more tax than is strictly necessary. We can do this.
If you are buying or selling overseas the CGT issues may be different; our French Legal Services team offer this planning service for anyone with a property in France.
Other tax issues:
Buying an investment property, or buying a new home and renting out your old one, are circumstances which often require an individual to complete a personal tax return for the first time. Equally, dealing with property rentals will make an existing straightforward return for a taxpayer more complicated. Again, we can help.
We prepare UK personal tax returns and basic accounts for a wide range of individuals who do not need an accountant for other purposes. These include people who need to complete a return for the first time following a divorce settlement, a substantial compensation claim payment, or having inherited assets under a Will.
Second home abroad?
If you own a second home outside the UK, you need to find out about that country’s tax, property and succession regimes. You may need to make a new Will here in the UK and/or make an additional Will in the country where your property is situated. It is important to be aware that succession rules in some foreign countries can override the provisions you have made in your UK Will, and would therefore dictate who receives the property following your death and in what shares.
If you own a second home in France, our specialist French Legal Services team would be happy to advise you on French Wills, IHT and estate planning matters. Whilst an English Will is normally valid in France, it is usually preferable to prepare a separate French Will dealing with the succession of a French property.
French law imposes strict rules of succession, determining who is entitled to inherit. Children have fixed rights in the estates of their parents, but problems are often caused by the fact that step-children are not recognised in the same way as natural children. Whilst living in England it may be possible for you to anticipate everything going from husband to wife and then back to the husband's children from a previous relationship on the wife’s death, this would cause various problems under
Not least of these is the issue of French IHT, where the rules are very different from those in the UK. Without careful planning, it is quite possible for 60% IHT to be imposed on French assets, or the same assets can end up being taxed in both jurisdictions without any relief against double taxation. It is also the beneficiaries rather than the estate who will be taxed on what they receive and each will have an IHT ‘allowance’ depending on their relationship to the deceased rather than the standard UK ‘Nil Rate Band’ arrangements.
Do I need a French Will?
If you do not make a separate French Will, the other complication which can arise in addition to the IHT position is that France does not recognise the role of executors. In an English estate, the executors or administrators will be responsible for the deceased’s assets until they can be distributed. In France the assets become the property of the beneficiaries from the time of death. The requirement that an executor hold everything while the succession is sorted out is likely to cause delays.
If your English Will is constructed in a way which uses Trusts in any form, then a separate French Will becomes even more relevant. Historically, French law has not generally recognised trusts and so the mechanics of an English Will may cause complications for French lawyers dealing with the French element of an estate. More recently, a new tax regime on Trusts has been introduced in France imposing a tax on assets held in Trust so English trustees could find themselves having to liaise with the French tax authorities to avoid penalties.
It is important when preparing Wills in more than one country to make sure the documents work together to achieve your goals and that one does not accidentally revoke the other. We can help you to prepare English and French Wills to achieve this, or to prepare a French Will taking into account any clauses in your existing English Will. If you have overseas property which is not in France, we are members of an international association of lawyers called 'Eurojuris' and can put you in touch with someone in the country of your choice who can assist.
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Ashton KCJ is authorised and regulated by the Solicitors Regulation Authority (Recognised Body number 45826). The information contained in this guide is of a general nature and specific advice should be sought for specific situations. We believe the information to be correct as at the time of publication, February 2013. While all possible care is taken in the preparation of this leaflet, no responsibility for loss occasioned by any person acting or refraining from acting as a result of the material contained herein can be accepted by the firm or the authors.
For everything you need to know about French property for sale visit www.clefrance.co.uk