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Many of our clients have French connections and if you have spent any time in France this summer and are considering investment there, or already own property there, here are some of the tax issues you might want to consider.
We have a number of clients who live in the UK, but own and let property in France.
Firstly, it is necessary to register the business with the local ‘Mairie’. Next you are going to need a tax return in both countries. In these circumstances the letting income is taxable first in France, and then in the UK. To deal with the fact that income has firstly been taxed in France, it is possible to claim relief for any tax suffered in France on the UK return.
It should also be borne in mind that the French tax year runs to the 31 December, whereas letting accounts for the UK need to be prepared to the 5 April. Income and expenses incurred in euros will also need conversion into sterling.
French rules for preparation of letting accounts are different to ours and there are two main options. The first is a full set of accounts drawn up under French accounting rules – while more costly, this can be beneficial if your business runs at a loss. If you are making a profit however there are various ‘Micro-BIC’ or simplified systems which effectively tax a fixed percentage of your turnover. These returns are usually cheaper to prepare, but you may then have tax to pay and won’t get full relief for your expenses if they exceed the flat rates allowed.
Local advice is a necessity to deal with complex French tax returns. Through our membership of MSI Global Alliance, a network of independent professional firms like us, we can help you locate a suitable advisor.
The same principles of tax in both countries usually applies for a sale of a property in France. For someone who is UK resident, but selling property in France, the Capital Gains Tax (CGT) position needs to be first calculated and paid under French rules. The computation then needs to be re-worked under UK rules. Relief can then be claimed for any French tax paid against the UK tax. The relief can’t exceed the UK bill though, so if you pay more CGT in France than the UK demands you shouldn’t have anything further to pay in the UK, but you won’t get a refund of French tax from HMRC either. In effect you should end up paying a total CGT bill equal to which of the French or English rules gives the highest tax figure.
Full evidence of purchase documentation and expenditure is required – so if you have opted to renovate a property with rustic, if not habitable, charms do retain all your invoices and records.
While this might sound like the outcome of a traditional Christmas negotiation over the number of sprouts the youngest member of the family will agree to eat, Brussels IV actually refers to new EU Succession Regulations.
One of the long standing issues for English people owning French property has been that France has forced heirship rules, which dictate where property must be left on death.
This is not always in line with what the family want to happen. The aim of the new rules, which came into effect from 17 August 2015, is to allow individuals to elect for the law of their nationality to apply. Proper legal advice needs to be sought as it requires careful elections and planning, but there is now potential for an English national to elect for more flexible English succession laws to apply to their French and other EU property.
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