A freelance travel photographer who spent years saving her money is convinced now is the time to move to the city that stole her heart -- Paris. She brings a friend along to help search for a spacious apartment that can double as a photography studio, but they quickly realize finding such a place is nearly impossible.
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Bonjour French Property Insider Subscriber,
Like mid-August, this is the time of year when the industry takes a brief repose. If you're in the market for selling or purchasing a home in France, then it's best to put your feet up and wait until after the new year to begin your project while all of France takes time to celebrate the holiday season with family and friends.
If you have had the project on your mind for a while and need to feel like you're not ignoring it, then the least you can do to occupy your time and scratch your itch is calculate your estimated "Frais de Notaires" (closing costs) if you are buying and the "Plus-Values" (capital gains tax) if you are selling.
What is the type of your property? Choose one of the following:
1) Acquisition of a property (apartment, house, garage, cellar) 2) Acquisition of property in the Future State of Completion (VEFA), or Off-Plan property 3) Acquisition of a completed property built as part of a house or by the contractor 4) Acquisition of land sold by an individual to another individual - or where the two individuals are not subject to VAT (apartment, house, garage, cellar)
In most cases for our readers, answer #1 is correct.
How will you finance your property? Choose one of the following:
1) Without borrowing 2) Loan without mortgage guarantee 3) Loan with mortgage guarantee
What is the value of your acquisition?
If you don't have a specific property yet, then estimate your budget here.
Of which any furniture of a value of (kitchen furniture, appliances...)
Furnishings, or anything not considered part of the apartment that could be removed, such as kitchen cabinetry, can be valued and that value can be deducted from the sales price of the property to reduce the tax basis. Take advantage of this!
In addition, if the buyer pays the agency commission (about 5%), instead of the seller, that further reduces the price on the deed and the tax basis. This is determined by the mandate between the seller and the agency, so be sure to ask!
Location, Department of your property? Paris is Department 75, Nice is Department 06, etc.
When it's all filled in, click Calculate Your Purchase Costs.
For example, on a property in Paris valued at €1 million, with furnishings of €10,000 euros, with the agency fees paid by the seller and without taking a mortgage, the closing costs are as follows:
Fee of the notary (subject to VAT) €9,345 Proportionate sale fee €8,545 (including €1,709 VAT) Copies and formalities (estimate) €800 (including €160 VAT) Fees due to the Treasury €57,486 Recording rights €57,486 Cost related to Sales Publication Fee €990 Estimated auxiliary costs €600 Amount of VAT assessment (Treasury) €1,869Total expenses (rounded) €70,300
In other words, you can estimate your closing costs to be approximately 7 percent of the net purchase price of the property.
If you are selling a property, that is not a primary residence (primary residences are exempt), capital gains tax will apply. Visit this part of the site to calculate the capital gain taxes and fees you can expect to pay.
An exceptional allowance of 25 percent or 30 percent may apply depending on the case. Click here for more information.
Now, answer the questions:Date of sale? Sale price? Deductions? Acquisition date? Purchase price? Acquisition Notarial taxes and fees? Works? Road costs and distribution networks?
Unfortunately, calculating your capital gains tax isn't very straightforward. So much so that by law, the Notaire must hire an expert to calculate the tax for which you will pay a small percentage!
A primary residence and its auxiliary buildings/rooms sold with the property aren't taxed. So, keep this in mind when managing your real estate assets. In general terms, you should have lived in it at least eight months for it to be considered a primary residence, but there are lots of variations on this theme, so be sure to ask.
Secondary and investment properties are liable to the tax, but the longer you own it, the less your tax burden. Since 2012, non-residents are liable for the social security tax included in the capital gains tax, but this is arguable (see below). The total basic rate is 36.2 percent with exemptions and reductions considered. The basic rate of the capital gains tax alone is 19 percent, with reductions granted over 22 years of ownership, beginning with the sixth year:
Through 5 years of ownership, there is no allowance. Between 6 and 21 years of ownership, count 6 percent allowance per year. For the final 22nd year of ownership, there is a 4 percent allowance. At the end of the 22nd year, no tax is owed. Hurrah!
The social security tax rate is 17.2 percent, applied in addition to the capital gains tax itself. The tax is reduced over time, similarly to the capital gains tax, but over 30 years, not 22, but also beginning with the 6th year of ownership:
Through 5 years of ownership, there is no allowance. Between 6 and 21 years of ownership, count 1.65 percent per year. For the 22nd year of ownership, 1.60 percent reduction is allowed in this single year. Between the 23rd year and the 30th year of ownership, you're allowed 9 percent per year.
The point is, if you own the property 30 years, you'll pay no capital gains tax at all.
There are numerous exemptions to capital gains tax, applied to individuals of low income levels, disabled persons, in the case of separation or divorce, and others. "Works" cannot be considered as exemptions if they were not specific improvements to the property, such as adding a bathroom or putting on a new roof. Decorative changes do not qualify, therefore, be sure to ask your Notaire for a proper estimate.
The social security charges applied to non-residents have been very controversial because this is contrary to EU legislation. Our experience is that you will be assessed for the tax, but that you can file a claim to recuperate it. Being granted the refund is doubtful as the tax authorities won't want to let go of the money you've already paid...but if it's substantial and clearly unfair, our advice to you would be to fight it!
Traveling in the South of France - Lavender in Provenc, Photo by Patty Sadauskas
I will remind you at this time, that while no one likes paying taxes — the closing costs in France are high — annual property taxes are very low, so the longer you own the property, the higher the potential gain. And if you're purposely not considering selling a property because of the capital gains tax that might be owned, then think again...if you're paying a tax, then you're making a profit! And what's wrong with profit?!
Next week I'll be writing you from Nimes, after having spent most of the week in Provence and the Languedoc-Roussillon. We'll be exploring what it's like to live in the south of France from a cost and lifestyle point of view...so stay tuned for our last issue of the 2018!
P.S. Speaking of the South, as always, friends of Parler Paris, Parler Nice and French Property Insider are welcome to stay in Le Matisse — at least when I'm not there. It's cooler in summer and warmer in winter! Contact us to secure your stay! contact@ adrianleeds.com
With all of the hub bub of the holidays, we want to promote this edition of Après-Midi early.
January 8, 2019
Liz Alderman serves as Business Editor of International Herald Tribune S.A.S.
Ms. Alderman is a specialist in monetary policy (Federal Reserve and ECB) and macroeconomics. She joined the IHT from the financial news agency BridgeNews, where she served as Paris bureau chief overseeing coverage of the French and eurozone economies and French corporate and political news.
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