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October 16, 2013 1:11 pm
1. New French property tax
Foreign residents who want to sell French property have a one-off chance of a big tax saving if they act quickly.
So what’s changed? Over the summer, the French Tax Administration brought in new rules to reduce tax on capital gains on French real estate. As well as long-term reductions in tax rates, there is a one-off allowance of 25 per cent on capital gains from the sale of properties between September 1 2013 and August 31 2014.
Why this reform? At present, capital gains on French property are only exempt from tax after 30 years of ownership, which discourages people from selling. The French government hopes that the new rules will stimulate the housing market, encourage more sales and reduce prices.
Who will benefit? Individuals who own French real estate. The new regime also applies where French property is owned by a tax transparent entity. It does not apply to companies that are subject to corporate tax and own French property, who will still pay French corporate income tax at a basic rate of 33.33 per cent.
Are any types of land excluded? Yes. The new rules do not apply to capital gains on the sale of building plots.
What are the main changes? Currently, capital gains made on French real estate by people resident outside France are subject to French income tax, specific taxes on high gains (up to 6 per cent on gains above €50,000), and high income (up to 4 per cent on income above €250,000), and social contributions. The new regime increases annual allowances with each year of ownership and applies them faster. Allowances start after the fifth year of ownership and increase annually. After 22 years, capital gains are exempt from income tax, eight years earlier than under the old rules.
What about social security contributions? Since August 17 2012, owners of French real estate who are not resident in France have been subject to French social security contributions at 15.5 per cent on real estate capital gains. The allowance applied before calculating these contributions has also changed, so that contributions decrease annually after five years’ ownership, until the property owner becomes exempt after 30 years. The imposition of French social security contributions on non-residents is, in any case, questionable, because they pay social security contributions in their own country, and the regime was recently challenged by the EU Commission. People resident outside France who are asked to pay social security contributions should consider filing tax claims against the French tax authorities.
Act quickly. To take advantage of all the new allowances, property sales should be completed by August 31 2014. But bear in mind that the French tax system is complex. Property gains are subject to multiple layers of tax and social contributions, so you need an accurate calculation of your potential liability.
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2. Chancel repair liability and other ancient rights
When I bought my house, my solicitor advised me to buy insurance against chancel repair liability. What was that for? Chancel repair goes back to the time of Henry VIII. It is the right for some churches to ask some landowners to pay for the upkeep of part of the church. It is an ancient right that still affects landowners in England and Wales today. In a high profile case that took 17 years to resolve, one couple was held liable to pay more than £200,000.
There was nothing about it on the Land Registry records for my property, so why did I need insurance? Until October 13 this year, chancel repair liability could affect a property owner even if it was not registered at the Land Registry, so people often bought insurance just in case. The historical records are unreliable, so it was hard to be certain about which properties were affected.
So that’s why I’ve read about the Church suddenly registering rights over people’s land. What changed on October 13? Today, chancel repair should only affect people who buy a house if the Church has registered its right at the Land Registry. If there is no mention of chancel repair in the Land Registry documents at the time you buy, you can be fairly sure that you don’t need to worry about it.
Can everyone forget about it then? Not quite. People who buy and should be safe, but those who become landowners without paying anything – by inheriting, for example – are still vulnerable. In those cases, it may still be sensible to investigate chancel repair liability and buy insurance if necessary.
There’s been a rush to register rights to minerals in the subsoil below other people’s land? Yes, that’s true. The right of the “lord of the manor” to minerals has existed for hundreds of years but also had to be registered by October 13 in order to bind future buyers. It doesn’t mean whoever is registered will make a fortune if any valuable minerals are found. Oil and shale gas belong to the Crown, regardless of who owns the land. People who own or have rights over the subsoil may be able to charge for allowing access to investigate and extract minerals but so far, the courts have awarded relatively small sums.
SJ Berwin is an international law firm. This column is written by Raphaël Béra, a partner in its Paris office, and Fiona Larcombe, a solicitor in its London office
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