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Maisons to be cheerful

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

purchase price.

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&#39etat future d&#39achevement (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

worldwide assets.

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