There are a number of difficulties that can be encountered on acquiring property abroad, ranging from legal arrangements and implications to financial and tax costs. Basic considerations that merit a mention include the fact that "non nationals" can often pay more than market value for property as a foreign property that might look like good value in an Irish context might be over valued. This can lead to difficulties in recovering the purchase and acquisition costs in the event of a re-sale in the short term.
At the present time a bijoux townhouse in Ringsend would cost more than a spacious villa in France. The French legal system is a civil law system which means that it is very different to our own, most especially in the area of property law. It is imperative that anyone intending to acquire property in France is fully aware of precautions that might need to be taken to protect both their interest in the land and their pocket from unanticipated costs.
For holiday homes located in remote rural areas it is important to establish that all essential services, including a water supply and sewerage facility, are available. Where possible, it is advisable to obtain a surveyor's report of the property which should address all issues in relation to services, planning permissions, way-leaves and unregistered rights of way. Finally, planning laws are very strict in France, particularly in rural areas and any extension or development of a property will have to be carried out in accordance with the "regional style".
As regards the legal technicalities of buying the property, the transfer is effected by way of a transfer document similar to our land registry transfer. This document is then registered in the Central Registry. The notaire, a government appointed official, will conduct an examination of the title and prepare the transfer documentation. It is not possible to effect a transfer without engaging the services of the notaire. The notaire's fee, will be calculated between 2 per cent and 3 per cent of the purchase price, but additional fees are charged for any advice given in relation to taxation or other matters.
If a financial institution is taking security, the notaire will again have to complete the documentation. If the property is being purchased jointly by a married couple, to be registered in their joint names, it would be important to ensure that a "clause de tontine" is inserted in the deed of transfer as this will ensure that the property passes automatically to the surviving spouse, without any tax liability. In the event of death of the survivor, it will be necessary to take out a grant of probate in France and inheritance tax should be borne in mind.
If the purchaser has several other properties and is purchasing the property purely as an investment, consideration could be given to structuring the ownership via a French Civil Company (S.C.I.). Transfer of ownership of the property can then be effected by way of transfer of shares. Originally, the stamp duty on such a transfer was 1 per cent, however since January 1, 1999, transfer duty has now been increased to 4.8 per cent. However, if the property is to be purchased by a company, it will be necessary to file annual returns. Also, if the property is being bought as an investment it may be necessary to engage a management company to supervise the lettings.
The purchase of a new or off-the-plan property is subject to VAT (TVA). The current rate of TVA is calculated at 20.6 per cent of the purchase price. However, second-hand property, or property which is more than five years old, is not subject to VAT, but stamp duty of about 6 per cent will be payable by the purchaser. There are two principal taxes payable on property in France, namely taxe fonciere (property tax) and taxe d'habitation (occupation tax).
France is divided into 95 prefectures or departments. France, unlike Ireland, has a strong local government network. The rates of property tax and occupation tax can vary depending on the region and the political party in power in the local authority area. For the purposes of assessment of these taxes, the person who is the owner and/or in occupation of property on January 1 is the person that will be assessed. A non-resident who lets out the property for a few months each year will accordingly be liable for occupation tax as well as the property tax. Property tax is calculated on the square footage of the house, the number of bathrooms and whether there is a swimming pool, etc. As these taxes vary from region to region, it is important to clarify with the vendor or his agent, what the property tax and occupation tax charges were for the previous year. When purchasing a property, the purchaser will not become liable for these taxes until the following January.
Income tax will be payable initially in France on rental income. Ultimately the final tax liability will lie in the resident state and the procedure is that the owner must include the rental income from the French property in his Irish returns to the revenue commissioners here and they will issue a credit for the amount paid in France.
In the event of re-sale of the property capital gains tax will apply. Notaire's fees are usually 2-3 per cent of the purchase price. Estate agents fees are payable by the vendor. However, in the event of a resale, it is important to note that French estate agents charge between 6 per cent and 8 per cent of the purchase price, plus advertising and outlays.
Patrick A Kelly is a partner in McKeever Rowan Solicitors. Additional research by Laureanne Delmas, a solicitor in McKeever Rowan's Paris office.
