How much does it cost?
You need to know where, how and what you are buying, as often the cost of buying abroad can escalate above that which you originally expected. Some of the extra costs will be included in the sales price, however others won?t, and It?s normal to assume an additional 15-20% on top of the house price to cover all the extra services involved. Below we have outlined the different types of cost you may incur:
- Estate Agent
The fees for the estate agent are normally included in the sale price of the property. Therefore you will pay it without affecting your initial budget. This inclusive fee can vary from 7 to 15% of the property price.
- Buyer's agent
This professional consultant is here to ensure that you receive valuable support throughout the buying process. If you don?t have the necessary knowledge of the local market and its rules, this kind of help is invaluable to avoid any nasty surprises that may be lurking, ready to transform you dream into a nightmare. You can choose to take on an English consultant, but he will be more expensive and will need to be linked to a French one anyway. Alternatively you can take on a French consultant directly (even better would be if they are based in the UK as they will better understand your needs) as their local connections will be invaluable to you when buying the property. The fees normally vary between 2 to 5% of the price of the property, rather than as a fixed price on the property sale. It is however better find a middle-ground by paying a small fixed entry cost, and therefore a lower percentage upon the sale of the property as this will bestow a token of good will, ensuring the work of the consultant to be of a high standard.
- Solicitor
The solicitor fees are related to the price of your property and can range from between 5 and 8% fees. Dealing directly with a French solicitor will reduce these fees, and the work will subsequently be more profitable. Again, you can choose to take on an English solicitor, but there will be a necessary increase in fees as they will need to be linked with a French solicitor to enable the sale. Therefore, the ideal situation to ensure that your interests are well managed, for a reasonable price, would be to use an English-speaking French solicitor.
- Travel costs
It is recommended that you allow for travel expenses, as a visit to properties of interest would be beneficial. Many combine their property visits with holidays, which leaves them with little time for either relaxation or for focussed property assessment. Ideally, your holiday should be to increase your appreciation of the culture and way of life, whilst a trip to prospect properties should be just that. The travel costs are varied, being as high or low as you wish to make them. Those who choose not to visit the property of interest are often regular visitors to the area, having a clear idea as to their investment. Similarly, an off-plan property need not be seen in person if the surroundings are known to them.
- Refurbishment
This cost may not be applicable to buyers of new or well-maintained properties, however for those who are buying an older property, possibly presenting a renovation project, refurbishment costs must be totalled into the budget. Yet again there are many advantages to employing local workmen/builders as they should be less expensive and have a greater understanding of local regulations and restrictions. This would of course be much easier if you have a grasp of the language, although some buyers? agents can assist with such matters, indeed a good agent should be able to guide and support you, even after the sale of the property!
- Insurance
It is always wise to insure against any unforeseen circumstances that may occur abroad, such as a natural disaster, or even you car rusting due to exposure to the salty sea-front weather. The fees all vary according to what you looking for. The simplest method is to use the familiar services of your current insurers, if they will extend abroad.
- Tax
Tax for holiday homes is not high, but it does exist and will have to be paid either at the time of property purchase, or at an agreed time after. When exactly is dependant on the region. When purchasing in France, any sales taxes will have to be payed by the seller, not the buyer. However the buyer will have to declare their new status as a landlord both in England and France.
How to finance your project?
There are many choices of how to finance your overseas property. The three most common are:
- Buying with Cash
- This is by far the simplest, most straightforward way to buy a property.
- Re-mortgaging your UK property
- This may be the least expensive choice but you put your home at risk.
- French mortgage on the French property
There may be a little more expense, depending on the transfer rate of currency. Paying a deposit will lower the interest of your mortgage repayments. This method, however will ensure the safety of your U.K. property as any risk will remain in France.
Whichever option you choose, you must have the mortgage in place before buying or signing for the property.
Taxes you can expect:
Here we introduce the different types of tax that are payable in France and in England. The two main taxes, to be payed annually in France, are the "Tax d?habitation" and the "impot foncier". If you renting the property you will have to pay rental income and capital gain tax if you sell the property. If any rental income is brought back to the U.K. you will be required to pay English tax on this profit.
- "Tax d?habitation"
This is the local residential tax, payable when the property is occupied, which has a minimum rate of 300? to 500? per annum, payable by the tenant if rented, or yourself.
- "Impot foncier"
This is the land tax, the rate of which is a minimum of 300? to 500? per annum.
- Income tax
In France the income tax can vary according to your investment. However, if you earn less than 8,385? per annum, from this income there will be no income tax to pay (except if it?s a leaseback, in which case it will be automatically paid over the years by your leasing company, unless you haven?t taken a French mortgage) Above 8,385? per annum the income tax is at a common basis of 25%.
If you have a U.K. mortgage or will be bringing the income into the U.K., then you will be obliged to pay income tax in both France and the U.K.
- Capital Gain Tax
This is the tax payable when you sell the property. In France they take16% tax on the profit if you sell your house (as your second home and none-residence), this has been in place since 2004 and is digressive over 15 years, at which time the tax payable will be 0%. In the case of leaseback it is 16% before 5 years and will reduce every year until, after 15 years, it also will be at 0%.
- Inheritance tax
This is the tax you must pay to secure ownership of the property upon the death of your relative. In France this tax will generally be at about 40% of the property value, rising to 60% in some cases. You can avoid inheritance tax in France, for rental investments, if you create a "SCI" Societe Commune D?investissement, which is a property management company.
Never accept a deal so as to lower the contracted property price, exchanging cash to make up the difference. This is illegal and if you wish later to sell the property, you will have to pay more capital gain. Your solicitor should deal with all of these matters, ensuring they all stay above board.
Legal Structure of property ownership
You are obligated to register the property under a name, of your choosing, in order to legitimise ownership. As in the U.K. it is possible to register one name alone, or joined names (such as a couple). However, when registering under joined names, if in the future there is separation of the owners, this will adversely affect the inheritance tax.
If you invest in property for rental income, through residential or commercial investment, you may wish to consider the creation of a company. Creating a business may initially be more expensive, but it will ensure the protection of any profits you make, remove annual tax and cancel out inheritance tax.
