I want to build or buy a property in France. What do I need to know?
This may prove to be a good time to purchase a property in France as
prices compare well with those in the UK. With low European interest
rates, money is cheap. You must remember that the house purchase
procedure is different and preparation is vital to avoid the pitfalls
caused by these differences.
First, you must secure a euro-denominated mortgage. There are a few
UK banks with specialist links in place to offer loans on French
property and many of the bigger French banks are experienced in
lending to the British. Typically, French banks will lend up to 80
per cent of the purchase price over a 15-year term.
In France, property cannot be bought subject to contract and
conveyancing is handled by a notary, a semi-public official, whom you
will have to appoint to act on your behalf. The same notary usually
acts for the seller and the buyer but the buyer pays his fees. He
will typically charge 1 per cent of the purchase price for his
services. Other costs you will need to pay include a land registry
fee and disbursements of usually 1 to 2 per cent of the purchase
price. If you are buying a property older than five years, an
additional purchase tax must be paid, totalling 4.89 per cent of the
If you are buying an existing habitable property, your notary will
arrange for a document of intent – compromise de vente or promesse
synallagmatique – to be signed by you. Then the searches, enquiries
and mortgage application can begin. You need to deposit 10 per cent
of the purchase price with the notary or estate agent but this is not
refundable if you change your mind. The notary is personally
responsible for drawing up the contract and, unlike in the UK, each
contract is individually prepared.
To purchase land or an uncompleted property, a different contract is
completed, a vente en'etat future d'achevement (sale of property for
future completion) or le contrat de construction de maison
individuelle (contract for the construction of a house). When the
sale deed is signed by the notary, you will have to pay 30 per cent
of the expected price in euros unless the construction is well
advanced, then a deposit of up to 5 per cent is lodged and payments
are made as construction progresses.
It may make sense to hedge against future currency risk if you are
making stage payments. If sterling strengthens during the
construction, the true cost will decline and vice versa. If you have
strong views about future sterling exchange rates against the euro,
you could buy a forward contract to lessen your exchange risk.
When you want to sell the property, it is advisable to appoint a
solicitor in the UK as well as instructing a notary in France to
prepare the deed to transfer ownership.
You will need to agree with a French agent the fees paid to find a
buyer (4 to 8 per cent) and do check that you are not giving the
agent an exclusive right to be your only agent, even if you sell the
property to someone you know yourself. If a notary acts as your
selling agent, it is the buyer who will pay his fees.
Any capital gains tax payable in France may be offset against any UK
liability. Non-residents are usually liable to CGT at a flat rate of
33.33 per cent of any net gain, with exemptions similar to the UK CGT
rules, plus a special abatement depending on the period of ownership
and number of owners. For example, if you own a French property for
longer than 22 years, there is no CGT payable. You must report the
sale of the property to the Inland Revenue on your tax return if you
are liable to UK tax.
French inheritance laws are very different from those in the UK and
apply to a property in France even if the owner is UK-resident and
domiciled. Basically, the laws prevent a parent from disinheriting
their children. Even if you have executed a will which states
otherwise, it can be disputed by your heirs, usually your children,
irrespective of their age. It depends if you are deemed habitually
resident in France as to how your assets are treated.
In many cases, the heritiers reservataires (protected heirs)
legislation applies only to your French property.
If you die without having made a will, the only person not well
protected is your partner, whether or not you are married. A new
French law introduced from July 2002 makes it easier to protect your
partner by preparing a will but you will need to use a solicitor who
is knowledgeable in French law and make it clear that the provisions
of your French will are for the French property only and not your