Buying or selling a secondary or holiday home in France and potentially becoming a resident by Prof Robert Anthony
France as a low-tax jurisdiction
With changes in legislation in various countries and the rise of international issues, many people are considering relocating from their home countries. If properly structured, France can be a low-tax jurisdiction, and provided individuals plan and organise their affairs before arriving.
Under current legislation, wealth tax in France applies only to property. Creating 100% debt on a property can help avoid this tax for several years. Additionally, for a primary residence or an investment property, the market value used for tax assessment can be reduced. Debt is depreciated over the term of the loan up to 20 years, so interest-only loans are preferable. For new residents, foreign property is exempt from wealth tax for the first five years. To arrange debt, we collaborate with international private banks.
Estate planning and asset transfers
When purchasing a valuable property, forming a legal entity can often be beneficial for estate planning and asset transfers. This entity could be a civil code company if the property is not rented out as furnished, or a “société commercial” French company if it is. When using the property as a primary residence, there is a choice of whether to buy directly, given that there are no wealth tax reliefs for direct ownership. We are frequently asked whether it is advisable to own the property through a foreign company to utilise foreign capital. We recommend clients discuss this with us to determine the best solution on a case-by-case basis. We strongly advise against using trusts due to French anti-evasion laws.
Social charges
In France, there is a flat tax that includes a 17.2% social security charge, and a 12.8% flat tax rate. If an individual is covered by another social security system, it may be possible to qualify for an exemption under certain conditions. However, this does not apply to US taxpayers due to the bilateral tax treaty with the United States.
Buying or selling a company
When purchasing a property, the seller may own it through an entity subject to personal taxation. Many notaries do not take advantage of the option to buy the company itself, which can result in savings on transfer taxes and future capital gains taxes. This is often due to concerns about contingent liabilities. However, these savings could far outweigh the potential liabilities, and a simple audit can help clarify the situation. For non-EU residents, selling a property may incur capital gains taxes and the need for a fiscal representative. Again, reviewing the entire period of ownership and any qualifying building works can help mitigate substantial taxes. This process should be carefully evaluated rather than simply appointing a representative through a notary without proper due diligence.
Drafting a will and making donations
It is important for property owners to consider registering a French will to avoid probate issues in the event of the death of one of the ultimate owners. “Démembrement” (usufruct and bare ownership split) can also be considered for its potential benefits. Gift allowances are currently set at EUR 100,000 per person if married under a separation of property regime. In France, there is typically a single tax return for a couple, and the tax year aligns with the calendar year.
Conclusion
With sound financial advice, significant tax savings can be achieved. It is important to remember that wealth tax is based on the market value of the property and is applicable for net taxable values over EUR 1.3 million, starting from EUR 800,000 when taxable. Effective debt management and careful planning are essential to minimise tax liabilities.
Prof Robert Anthony is the founder and principal partner of Anthony & Cie. He was formerly a professor of international tax law at Thomas Jefferson School of Law, California. He is a chartered certified accountant (UK) and a certified financial planner (France).Contact Robert
As a multi-family office (MFO), Anthony & Cie
GGI member firmAnthony & Cie Fiduciary and Estate Planning, Tax
