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French Property Law Aims To Protect - Part 2

Sep 5, 2008
In properties shared between several co-owners, the building's manager insure the common parts of the building (staircases, elevator and the like) and some privative parts of the apartments and their inside fittings. This is referred to as group insurance and provides cover for fire damage, lightning, explosions, water/flooding, natural disasters, acts of terrorism, storms, hail, snow and more. In these contracts, a clause must specify that co-owners are regarded as being third parties between themselves.

Bear in mind that France has relatively high taxes including income, property, and residential taxes, wealth and capital gains tax. Although the French Government has pledged to reduce income tax by 30 per cent in the coming years, tax is still rather high in France and there are hefty penalties for late payers, so check your French tax return for the deadline.

Property owners will have to pay a local tax which covers services such as road maintenance and rubbish collection. The cost varies from area to area. Wealth tax applies if your French assets exceed 720,000 euros. Properties with a rental value of over 4,600 euros attract a residential tax (taxe d'habitation). The tax is due by whoever lives in the property. Income tax applies to rental income. Regardless of their nationality, individuals who do not reside in France are taxed on their income from French sources only.

In accordance with the provisions of Article 164 B of the French tax code, income from immovable property situated in France is subject to French tax. Non-residents should file their tax forms by 30 April in the following year. If a property is rented out furnished and provides a gross renrtal income of more than 23,000 euro, a specific return has to be submitted to the local tax office. Net rental income from French property is taxed at a minimum of 25 per cent, but no assessment raised if liability less than 305 euros.

French capital gains tax may apply when you sell the property. Income earned from French property is considered to be income arising in France and, as such, must be declared to the French Inland Revenue. For non-EU residents, the rate is 33.3 per cent of the net gain. You may have to appoint a guarantor which may be a bank or other approved financial institution operating in France.

Your beneficiaries may be liable to French inheritance tax when you die. Parents, spouses and children benefit from higher tax free allowances, but successors who are neither blood-related nor married to the deceased are liable to pay tax at the rate of 60 per cent.

Your French property will be governed by French succession law. The consequences are that children automatically inherit part of their parents' estate. There is a limit to how much may be left by Will to non-blood relatives.

An individual's assets on death consist of the retained portion (reserve legale) and a disposable portion. The former goes to the protected heirs, regardless of the wishes of the deceased. If there are no children or grandchildren but there are surviving ascendants (living parents or grandparents), the retained portion is 25 per cent of the deceased person's estate.

That difficulty can be avoided by opting for a purchase en tontine for jointly owned property: the whole French estate then devolves to the surviving partner, as if the property were owned in the survivor's sole name from the time of purchase. For married couples, changing your marriage regime to "Communaute Universelle" is also an excellent method of ensuring that when either spouse dies the other inherits the property in full and avoids inheritance tax liability.

Communaute universelle involves all of the couple' assets falling into in joint ownership. A special clause (clause d'attribution integrale au conjoint survivant) allows all the assets to devolve on the surviving spouse without the payment of French inheritance taxes. The French civil code has been recently amended in consideration to the 1978 Hague Convention on marital regimes. As a result, it is a lot easier for couples married abroad to change their matrimonial regime than it is for French couples to do it.

Changing your matrimonial regime affects your French assets alone and therefore any provisions made in your home country remain unaffected.

The Acte Authentique can also be amended to include a Tontine clause. With such a clause, the survivor has complete autonomy to dispose of the property as he or she wishes. The surviving partner or spouse is deemed to have owned all the property from the beginning. The downside of a tontine resides in the fact that:

* in the event of a dispute between joint owners a judge may have difficulty making an order in relation to the property because there will be uncertainty as to who is the owner. A court could therefore only order a sale by both parties.

* the sale of a property when both parties to the Tontine are alive is only achievable if both agree. If one refuses to sell, the other cannot force the sale.

A general rule is that you must be sure you know what it is you are buying: inspect the property thoroughly and enquire whether there are any covenante(servitudes) such as rights of ways for example.

Caveat emptor applies to French property purchases: remember that buyers take responsibility for the condition of the items they purchase and should inspect them before purchase.

Where a property is purchased off-plan, the purchase process is strictly regulated. It is nevertheless advisable to check what completion guarantee is offered by the developer. Is the latter financially sound? Will the works realistically be completed by the contractual date?

Check that there is proper access to the property. If this is an older property, has a survey been carried out? Are you buying the contents too? Are there any rights of way? Where are the property's boundaries and who pays to define them? Is there agricultural land and is it farmed? (If this is the case, the farmer may have a right to gazump you);

Be careful with attractive tax loopholes: never neglect the character and quality of a property in consideration to tax advantages. Seek legal advice on what happens to the property when you sell, upon your death or in the event of a dispute with co-owners.

Do not pay money directly to the seller, since you may lose it or have to pay twice: sometimes the seller is not empowered to sell, or the property is subject to mortgage. And when you sell, do not let the buyer enter the premises before signing the final deed of sale or before paying the purchase price.
About the Author
For further information on buying investment property abroad and homes overseas
visit Fly2let.net.

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