Article today on VAT on sale of French home

[Chrissie]

Article in expat telegraph today - sorry, not sure how to do a link so have cut and pasted:  (should we all be worried?....)

"John Shepherd was faced with a red-tape nightmare when he came to sell in France. Sheila Prophet gives comfort

Like thousands of other British people who moved to France, I loved my new life - until I decided to sell my house and came up against the country's complex tax laws.

The dozens of books and television programmes extolling the dream of buying property in France fail to mention the horrors of selling up and returning home. What hurts so much is the unexpected attentions of the French taxman, who can severely reduce the proceeds from the sale.

Take the sale of our house. It took nearly three years to restore and modernize a large farmhouse into which we built a two-bedroom apartment. But when my wife's father died, our plans changed and we found ourselves rattling around in a seven-bedroom house. Time to sell.

We achieved our asking price of £450,000 and the sale was proceeding smoothly until we received an oddly phrased e-mail from our prospective buyer. He stipulated he would not be held responsible for any VAT - called TVA in France - on the sale. Since all the TVA on the work had already been paid to an assortment of plumbers, electricians, the roofer, the mason and the carpenter, we were perplexed.

We did not know about the two different rates of TVA that apply to building work. On older houses improvements attract a preferential rate of 5.5 per cent, a measure introduced 10 years ago to stimulate work for local artisans - and one which has been fully exploited by ex-pats. The normal rate on building work is 19.6 per cent but since ours was an old house, the artisans must have billed us correctly. Or so we thought.

We talked over our purchaser's unexpected stipulation with our notaire, the French legal entity who deals with property transactions and collects the taxes.

We told him about the additional accommodation, built not as an external extension but within the house, under its existing roof. With this information and a note of all the room sizes, he calculated that the living space had been increased by about 23 per cent and that TVA at a rate of nearly 20 per cent would be due.

We were looking at incurring a huge TVA bill of about £103,000. There was, said the notaire, no allowance for off-setting the original purchase price of the property against our selling price. The law says the full TVA rate is applied for the first five years after improvements have been completed. We had two more years to go.

We found an accountant prepared to take our part. He explained TVA is very rate and the proportion of the new build accounted for by the roof space. TVA, we were relieved to hear, is not payable on fresh air.

The notaire eventually settled on a figure. We finally paid just £6,400 - a far cry from the £100,000 we might have owed. And the lessons? TVA rules are very complex and, as the accountant told us, not all notaires understand them fully. Only minor-scale alterations, like adding a kitchen, a bathroom or a small bedroom are TVA exempt.

My advice? Always question the notaire's figures. Always employ an accountant who knows the law. Never, ever throw away a receipt for improvements until your notaire has submitted the final accounts that include all the tax payments. Finally, if major works that increase the living space in your home have been carried out, don't sell for five years after finishing them.

Sheila Prophet writes:
According to Michael Doig of real estate advisors Colliers CRE, the Administration Fiscale, the French equivalent of Inland Revenue, revised its laws on VAT last August, as the system was causing confusion amongst both property owners and builders. New forms issued at the end of last year are far less complicated. Preferential rates of VAT are given to homes more than two years old, but only on works carried out. Goods and materials purchased are still subject to the higher rate.

Any renovation which changes more than two-thirds of even older structures will be liable for the higher rate of VAT. Owners must also issue each workman with a document stating that the building is more than two years old to allow the builders to charge the lower rate.

The most important thing is to ensure you have a good notaire on your side who is well briefed on French property tax law. Visit www.notaires.fr and click on the Union Jack for the English version.

[Will]

I don't think users of most forums lke this need to worry too much, or at least they shouldn't need to if they read the relevant posts.

The complex issue of TVA on houses under five years old - and for TVA purposes a conversion or substantial renovation can be counted as a new house - has been discussed recently. What the story does highlight is that fact that TVA does not, now, apply solely to new builds, and the fact that notaires can seriously overestimate the amount due. Of course, waiting until the five years has passed is not always a solution, because the house could then be subject to capital gains tax.

There are a couple of points in the article that I am not sure about, but we will leave those to the builders, who should have had experience of the rules, to query, or confirm.

[BJSLIV]

I saw this article at the weekend and thought it was a dreadful mess.

There is no way that she was ever going to be required to pay 19.6% Vat of the total proceeds, so talking about a bill of £100,000 is ridiculous.

She talks about Vat arising because she had been indulging in "new-build" and hence the  liability for 19.6% Vat rather than 5.5%. It is this problem that  her buyer raises in the letter.

She then mixes in VAT liability on new-build properties sold within five years.

The article just confirmed that even having gone through the process and paid the bill she still wasn't any clearer on the subject.

[Llwyncelyn]

The arithmetic does not work.  Some 20% TVA equates to £`100,000?  Just tabloid inches.

[Gluestick]

Sorry to bang on reference my favourite bleat, however, if one is disposing of an asset worth £450K surely it is worth consulting a professional?

Even better, consult the professional prior to arriving at the problem!

A notaire will invariably charge the most effective (to the state) tax position they can dream up, since they are, as a state employee, tasked with extracting the most tax they can!

The day I hear about any state employees placed in a position of enviable power who assists taxpayers to optimise their tax charges, that day I will revert to believing in Père Noël, Fairies, Flying Pink Pigs and the philanthropy of One Eyed Brown!

 

[jehe]

I find all this rather confusing as I hade no idea that TVA was payeable on the sale of a french property if it was your main residence, nor capital gains for that matter. Does that mean that if you make significant improvements to an older property and the sell up you are taxed on the increased value of the property ??? I must say that the most interesting thing about the French tax system is the more research I do the more confused I become....................thick or what ??

[BJSLIV]

If you are living in France and its your main residence you don't have any Capital Gains Tax to pay. However if its a newly built house, or a building than has been renovated to turn it into a house, then you have VAT to pay if you sell within the first five years.