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Holiday-home ownership 
Holiday-home ownership is becoming more common in the UK. Figures published by the Halifax show that about 3.5 million British people now own a holiday home. About one third are in the UK, with 16 per cent in Spain, but France is becoming increasingly popular.
Anyone considering purchasing a property in France, either as a holiday or permanent home, needs to look at the tax implications. The primary tax pitfalls surround inheritance tax (IHT), capital gains tax (CGT) and France’s wealth tax. First, consider your family circumstances and how they will be regarded by French law. Property in France comes under French law and taxation regulations, and importantly, under French succession rules. In France the children, rather than a spouse, are the main inheritors of an estate and the rules of succession have potentially dramatic implications for IHT. In France, IHT is payable, not by the estate, but by the beneficiary, and the amount depends on the latter’s relationship to the deceased. Children are permitted to inherit up to €50,000 (£34,000) free of IHT, while spouses have a nil-rate band of €76,000. Thereafter, tax is payable in bands beginning at 5 per cent and gradually increasing to 40 per cent on amounts above €1.7 million. Brothers and sisters who inherit have a nil-rate band of only €5,000, unless the sibling is single and over 50, or infirm, or has been living with the deceased for at least five years before his or her death. In general, the tax rules are kinder to uncomplicated families than to those who are divorced or have more unusual arrangements. Janet-and-John-type families — a married couple and children — are likely to pay less inheritance tax on property than they would in the UK, but if it is a non-traditional family, or someone without close relatives, the tax bill can be high. If you dispose of your French property, you will have to pay CGT in France, but not in the UK: there is a double taxation treaty that ensures that you do not pay CGT twice. The CGT regime in France is relatively generous. UK residents who sell a holiday home in France must pay CGT at 16 per cent. There is no CGT allowance if you sell within the first five years, but you receive a CGT exemption of 10 per cent after five years, which increases by 10 per cent each year, so that after 15 years there is no CGT to pay. If you are resident in France when you sell your property, you pay CGT of 16 per cent plus 11 per cent social taxes. This may be important where a UK resident owns a holiday home that he or she wishes to sell to purchase another property to live in permanently. In this case, you could consider selling the property before moving to France to potentially avoiding the extra 11 per cent in social taxes. Most holiday homes in France would not incur the country’s wealth tax — payable on properties that are worth more than €750,000, a relatively high price for a French property. If you do buy a home worth more than that, wealth tax is payable at 0.55 per cent up to €1.2 million, rising gradually to 1.8 per cent on assets worth more than €15.5 million. However, if you move to France, or spend more than half the year there, wealth tax is payable on all your international assets worth more than €750,000. And wealth tax can be payable even if you do not spend six months of the year in France. It is payable if you spend more time in France than anywhere else. For example, if you spend five months in France, four in the UK and three in the Caribbean. There will also be local taxes and income tax to pay and you need to declare any rent that you receive on your UK tax return so not to fall foul of HM Revenue & Customs. Tax relief is usually available in the UK for taxes paid overseas. However, the individual will usually end up paying taxes at the higher of the UK or overseas rate. If you require any further information about the services that we provide or would like to review your financial planning position, please contact us |