Why we are NOT buying in France

[Catalpa]

[:-))]

No, not psychic... just understand what many of us would choose to buy in an ideal world. [:D] We have a house on the southern side of a hill in Normandy, looking across a river valley to the hills on the other side... nearest shop 3kms away...

 

FWIW, I think French inheritance law will gradually change, particularly with the increasingly aged population - one day, will the scenario I described be deemed as to infringe Fred's human rights to live how and where he needs? but the changes probably won't be in time for most of the people posting on this forum today [:P]

[Phil the Francophile]

I did wonder the other day when someone might want to challenge this in the Court of Human Rights. I guess the answer is that it might come at some point but is not likely to succeed.

The French make no bones about using Civil rather than Common Law, and never have done. They are used to that system, and accept it as it is, just as we accept ours. So any challenge is likely to come from an etranger, which would weaken it straight away. The response would probably be "if you don't like it, go back to where you came from".

[WJT]

From what I understand Napoleon implemented this law to disperse assets i.e. many inheritors splitting the property.  Therefore, limiting the number of powerful landowners that could potentially become his rival. Why the French have put up with this for so long is beyond me. It appears it effects the average Joe nowadays much more than the powerful land baron of which I am sure have ways and means to beat the system.

[Tourangelle]

It is never all so black and white though, is it? For anybody who comes across this thread in the future, I'd like to stress the importance of going to see a notaire to discuss your own particular situation.

[Phil the Francophile]

There seems to be a common misconception about usufruct. Usufruct is based on a sliding scale of entitlement to life interest which is dependent on age. Usufruct has a value and is compared with the quotite disponsible to determine who inherits what, and who is entitled to do what. It is not as straight forward as saying "Oh I have usufruct, therefore I can stay in the house as long as I want without any loss or threat."

If you do not have life interest then you cannot sell without the permission of the inheritors. In my situation I would have to reach 81 before I had a total life interest, and could not be affected by inheritors.

As I mentioned earlier, the people we were buying from could not sell their house, even though they were BOTH alive, without the consent of their son. In that case usufruct had not even come into it. 

I could not agree more though about getting good quality advice. It might not be what you want to hear (as in our case) but once the compromis is signed life takes on a whole different perspective.

 

[Espresso]

Phew! I sympathize, Phil - and I also totally empathize.

My partner and I thought we were the only people who couldn't get the whole French equation to work, and (after months of dreams, visits to France, searching for houses online and for real, having houses surveyed... and generally falling in love with the whole idea of moving to France) we feel like it's just impossible for us.

We feel pretty p'd off. We got legal advice. In our case, there are no kids, but a notaire assured us that where there are no kids and parents, the authorities will look for the nearest blood relative (in this case, a sister on one side and a brother on the other... followed by their kids etc), in order to force seccession.

The bottom line looked like, whatever we did, we risked one partner being left with a nasty tax bill and the possible loss of the house - depending on what our finances were like at the time.

We shouldn't forget, I suppose, that France is waking up to the joys and woes of property ownership, and laws are changing in the UK and France, especially relating to estate tax, capital gains tax, and more people will be pushing for better tax breaks. Maybe things will change.

[saddie]

"As I mentioned earlier, the people we were buying from could not sell their house, even though they were BOTH alive, without the consent of their son. In that case usufruct had not even come into it"

We have sold our first house in France and bought another. No suggestion of children having to agree was mentioned. How come?

[Phil the Francophile]

The couple we were buying from were both in their 70s, and retired. The husband was not in the best of health and they wanted to downsize and buy something smaller in the village centre. I guess if that profile does not fit you then the notaire is not bothered. He wasn't bothered when we sold our first house in the Dordogne either. Not being 70 does not last for ever though.

[Beryl]

Put the money in the bank or UK property and rent it out and then rent in France.

[Jo53]

I have often wondered how this works for home-owning French families with small children. Supposing papa dies leaving maman with three children under 10. Maman wants to move to be near her family 500 km away. She needs to sell the family house and buy another one in the new area. Can she not take a decision on the children's behalf to do that? Or would she be forced to give half the money to a fund for the children and be left unable to provide a new family home? This would be our nightmare scenario because we have small children and if one of us died, the other would certainly want to return to the UK to be near family and friends. And we'd want to sell the French house to buy another family home in the UK. We have a tontine so it would be do-able. But how do the French manage?

[ChezShells]

Hi

First sorry but I havn't read all replies and also that i'm not clued up on this but.....

can you not form a company in the UK in both names and buy a property in France in the company name therefore being able to livethe dream and not worry about inheritance issues.

[Phil the Francophile]

With children under the age of 18 a court decides what is best for them (at your expense), and a sale can be blocked, or ordered by the court depending on the situation at the time. Referring the matter to a court is a decision made by the notaire.

A clause tontine has the effect of disinheriting the children on the first death, so the above would be largely academic, and with a tontine in place you would be able to sell without any interference. You would be liable for inheritance tax which would be levied at 20% (assuming you are married). The 20% would be applied to the percentage of the property being inherited, plus 5% of the total value of the property added for furniture and other items. You are allowed to inherit 76,000 euro in property before tax is due. I did quote an example in an earlier posting where a half share was worth 150,000 euro. In that case the tax would be around 18,000 euro.

Remember too that you would be liable for capital gains tax when you sold. Capital gains is levied at 33% on the profit made since buying the house, less any allowable costs and some monetary adjustments.

Bonne chance!

[Will]

The originator of this topic has decided that France is not for him and his family, for very good reasons. It was good of him to share those reasons, but I think that if he had expected widespread agreement (I don't personally think he did) then that is rather naive. After all, many people have already made that decision so naturally they will find the need to justify themselves.

The originator has obviously gone into things comprehensively and explored the possible options. Unfortunately the fact remains that this is France, and there are few, if any, legal and sensible ways around the country's succession and taxation laws. It is the same as the social security and income tax questions that frequently come up here - if there was an easy and economical way of legally avoiding the stringent laws then we would all be using it. Otherwise we have to accept it, or, do as the originator rightly did, decide it is not for us after weighing up the pros and cons.

There is one area where the originator's information, or interpretation is incorrect or out of date. The 33% capital gains tax rate applies only to non-Europeans. European nationals pay 16%. Though if you are French resident there is an additional 11% in social charges, making an effective rate of 27% (though a French tax resident will not pay capital gains on sale of the principal residence). Those tax resident elsewhere may also be liable to capital gains tax in their own country on disposal of overseas assets, it depends on what agreements are in place between the countries. That between France and Britain is changing, and not to the advantage of many French house owners, so do tread with care.

[KathyC]

Surely Capital Gains Tax is only on second homes? You may not want to pay it, but you've been talking about the situation where the remaining partner might have to lose their home to pay tax. By including this here it rather confuses the issue.

Will, our posts crossed.

[Phil the Francophile]

My reasons for posting were indeed only to inform. I did not expect tacit agreement. What people do, or have done is entirely up to them. I just have the feeling that so many dive in without really looking to see how deep the water is.

On the subject of Capital Gains tax, I included it specifically in relation to people selling their home in France to return to the UK. My advice, last week, was that if selling up to return to the UK a notaire could take the view that the original purchase, as it had not been permanent, had been for the purposes of financial gain, and therefore assess the sale for Capital Gain. If that decision was taken it could only be appealed through a court, and the rate of charge would be 33%.

As in any case, an opinion is merely that, and I pass it on for what it is worth.

[Val_2]

There was a case on national lunchtime news here not very long ago about an old lady who lives on the Isle de Ré or wherever,but is off the coast near La Rochelle. Now, this island real estate is considered to be of one of the highest value areas to live in the whole country. The old lady's husband was a retired fireman on the island they eaked out their living by a bit of farming and fishing too, however, on his death because the value of their property which they owned outright was so high at today's rates,the inheritance taxes that the widow has to pay onthis ridiculous value of her home has forced her to sell, leaving hardly a centime in her bank account and move in with a kindly neighbour who has a spare room and will look after her till she dies. This is yet another horror which people need to consider when buying very expensive properties here, luckily we didn't go down this route but inheritance is a problem even for the local population. Perhaps the rules will be changed eventually to bring the country into the 21st century.

[Unknown]

Sorry to go on, but does the tax percentage not change when one has owned the property for more than 3 years?

I thought I'd read somewhere this was the case to prevent folk from buying up cheaper properties, sitting on them for a couple of years and then selling on with a fat profit.

[KathyC]

Phil

I don't know whether you're right on the final point (you sound like you've researched it so it may well be true). I still think what I said remains valid; if someone is selling up to return to the UK then they're not being forced to sell their home to pay taxes. Both your points may be valid but you're combining two separate sets of circumstances.

I also think that an earlier post was a good possibility for someone who wants to live in France but is worried about inheritance; keep your property in the UK and rent in France. There is usually a way round things if you think widely enough.

[KathyC]

Val,

I know that you live in France and that you're quoting from the French media, but I'm confused. I have read that the top rate of tax for a surviving spouse is 40% (after an allowance) and I can see that paying these taxes might mean downsizing or moving areas (obviously difficult for an elderly widow) but I can't see how that could mean leaving "hardly a centime". I don't know how much the property you're describing was worth but my back of fag packet calculations would seem to say that a property worth,say, 300,000E would mean 50,000E tax maximum. There must be more to the situation you've quoted than you have described.

[Phil the Francophile]

Above 1.7 million euro the rate of inheritance tax is 40%. Don't forget to add on 5% extra to the value for furniture and the like, and add in any other assets.

On the Ile de Re you can get properties in excess of 2 million euro. If the unfortunate lady had one like that, her tax bill, after deducting her 76,000 allowance, and assuming she inherited half the property, would be 389,600 euro. Hardly chicken-feed.

Not that there would be many of us with a property worth 2 million euro................................ yet!!

[KathyC]

I agree absolutely Phil, but the "unfortunate lady" as you put it, would still have 1,610,400E left over. Oh, to be so unfortunate! As I said, not really a case of "hardly a centime left"!

[Val_2]

I just related the facts as they came to the attention of the public because of her not having hardly anything left after paying her taxes. The house was quite large and by the sea,hence the extreme value compared to when they bought it some 40-50 years back and why she has/will have to sell and leave it because she just cannot see any way round it. The mathematics are not so relevent to this thread it was just an example of what can and is happening. An english lady I know well here had to pay the equivalent in euros of £17K on a propery of currently valued on 300000€ on her remaining half of the house when her husband died suddenly two years ago and they had no will as such and have a daughter who has inherited her share.

[Phil the Francophile]

Touche Kathy. But remember..............

The inheritance tax is based on the assessed value of the assets and not the realised sales value. This would be payable straight away. The lady may have to wait some time before she gets a sale.

Also, we do not know whether there are children or other inheritors involved, nor do we know what other assets, or indeed debts, there are involved. Messy it could very well be!

[Quillan]

As far as I was aware recent changes in French law (Jan 2005) meant that if your partner died before you then you can live in the family home, rent it out, modernise it etc and not be kicked out. The moment you sell it or you die then it has to be divided up and tax is due. Not only did I read this here somewhere but there aws an artical in LF last year which I shall try and find.

There are also issues with being resident which now means tax resident i.e. you must be 'known' by the tax man. This means you don't pay capital gains tax on your house (if you only own one and you are resident in France) and the new wealth tax percentage is much lower. You need to be aware that wealth tax is payable over 750,000 Euros on the property and the value of it's contents and your world wide assets. If you are not registered as tax resident in France then you of course pay a lot more. Again further details can be found in the May and June copies of LF magazine.

[Phil the Francophile]

True(ish) Quillan, but remember that usufruct has a value in inheritance terms. The life interest, allowing you to stay put, is assessed on a sliding scale, depending on age, and where the value of the usufruct exceeds your legal inheritance right you have to cough up the financial difference to stay there.

As an example. If your partner died, and you had three children, and you were aged between 61 and 71, the value of the usufruct would be 50% of the total inherited value. Having three children means that they, and you would get 25% each of the inherited value. You would be liable to compensate the children for the difference between the inherited value of the property (25%) and the value of the usufruct (50%) if you wanted to stay in the house. As we seem to keep quoting a 300,000 euro value, in the case I have outlined this would mean 25% of 150,000 or 37,500 euro.

In the case I quoted, which is similar to my situation, you would have to be 81 before you didn't have to pay anything to the other inheritors.

Also, although you are entitled to stay in the house I do not believe you are entitled to rent it out or modernise it without the permission of the other inheritors. You certainly cannot sell it without their permission.

You can stay living in the family house, but there is a price to be paid.