You’ve worked hard, you deserve a break, and France is only a short train journey and ferry ride away. Perhaps you are thinking of visiting regularly, or maybe you want to spend the summer there (after all with cloud technology all you need is an Internet connection and you have an office away from the office), or maybe it’s an investment for the future. Whatever your reason, if you are thinking about buying a house in France there are a number of tax issues to consider. Carol Cheesman from Cheesman’s Accountants takes a look at the top three things you should ask your accountant before purchasing your French abode.
Will my Residence status change?
If you don’t plan to move permanently abroad and want to remain living in the UK, then your residence status is not likely to change. However, if France does become your permanent home, then HM Revenue & Customs will probably view your residence status in the UK as “non-resident” or “not-ordinarily” resident. This can affect what UK tax you pay so it is important you know what your residence status is. If you are UK domiciled, then you will pay UK tax on your worldwide income. You will pay French tax on your worldwide income if you are resident in France.
I’m buying a property to let; what tax will I need to pay?
You will need to complete a French Tax Return as well a UK Tax Return if you remain resident in the UK and you will be liable for any rental income or Capital Gains Tax. In your UK Tax Return, you can deduct foreign tax paid but you will have to make up the difference if the tax paid in France is lower than what you would pay in the UK. There is an annual wealth tax payable in France but if you are resident in the UK, then it only applies to French assets. The tax starts on total wealth of 720,000 euros (about £500,000) and has a top rate of 1.8%.
Are French Inheritance Tax laws different?
Unlike the UK, where we can freely distribute our assets as we like upon the writing of a will, in France it is very different. There, it is the location of the property that counts, not the residence status of the owner. There is a strict order in which assets are passed and it is as follows:
Children (or if deceased, their children)
Parents and privileged collateral heirs e.g. siblings (or if deceased, nephews and nieces)
Other collateral heirs (cousins, uncles and aunts etc)
This order is obviously not very beneficial to the surviving spouse and you should always seek legal advice in this area because it is possible to apply for a French will to be made which, in some instances, can improve the situation for the surviving spouse. Inheritance Tax (IHT) in France is progressive and reviewed each tax year. There is a double tax treaty between the UK and France, which means that you will not have to pay IHT twice.
Whatever your reasons for buying a house in France, you need to consider the tax implications before you sign on the dotted line. By being aware of your options and putting the right safe-guards in place you can enjoy your property without any nasty surprises for either you or your family.
Carol Cheesman is principle of Cheesmans Accountants. For more information see http://www.cheesman.co.uk