Interview with Maitre Kergueno, solicitor
Today we meet Maitre Benjamin Kergueno, real estate specialist and Managing Director of Attorney Counsel, a Law firm based in Nice, Cannes and London. Attorney Counsel specializes in Law and provide professional advice to English or Russian speaking customers interested in buying a property in France.
Fully qualified in French real estate Law, Benjamin Kergueno and his firm will be able to answer all your questions regarding the French property buying process as well as other topics such as inheritance or cross-border taxation. Today, Benjamin Kergueno answers some of our questions.
Hello Benjamin, can you introduce yourself, what do you do, tell us about your career?
For more than 15 years I have been advising local and international clients for a variety of French real estate and construction matters, ranging from the practical property management and signature of acquisition agreements, up to representation in judicial disputes before French courts.
Actually, I am a Managing Director of French Law office, Attorney/Counsel, which is an independent unique French Law firm specialised in legal practice for English and Russian speaking clients. Today we benefit from three addresses in Nice, in Cannes and in London to better meet client expectations and goals and succeeded in gaining trust from demanding clients and build a worldwide renown.
We provide professional legal advice and efficient legal assistance in the various areas of French Law, specialises in the legal aspects of French property Law including buying a property in France, tax Law ,immigration Law, in different fields of business and contract Law and litigation.
Our team, made up of multilingual professionals with longstanding experience, dynamic, reactive, proactive and have developed market-leading know-how in their areas of expertise. Our principal feature is focusing on clients’ projects through the understanding of the French market to offer the best legal solution, helping our clients to achieve their real estate projects.
What issues non-residents wishing to real estate in France approach you about?
Today clients come to see us so we can usefully advise them when acquiring property in France and especially exceptional properties, including draft the preliminary contract and deed of sale accompanied by a financial statement. Their main questions are the cost of such an investment, because when you buy a property in France you have to pay registration fees.
Moreover, buying a property in France may be the subject to heavy tax consequences, you can become a French tax resident, therefore such risk should be evaluated. We also advise our clients on the various taxes they may be subject to (property tax, housing tax, IFI “Impôt sur la Fortune Immobilière).
In addition, we advise on how to acquire this property (through a SCI, a family LLC) according to the expectations of clients.
What are the advantages, as a foreigner, of being supported by a French real estate lawyer when you want to buy real estate?
Before considering any real estate project in France, a foreign national should contact a French real estate lawyer to determine the conditions under which this investment will be submitted.
Firstly, consideration will be given to the nationality of the purchaser and its marital status, if married. Knowing that the Law of the location of the property applies to real estate matters, French Law will therefore be enforced. The consequences of the purchase will be very important as to the ownership of the property as well as its eventual resale or onward transmission. Buyers should know that the members of the European Union, as well as foreign nationals who have signed a special agreement with France, will benefit from special legal regimes (bilateral agreement, The Hague Convention).
Secondly, the acquisition of a property in France will sometimes require significant funds transfers which are subjected to verification by intermediaries (banks and credit institutions). Attorneys should also verify the source of funds to prevent money laundering operations and may be called upon to make official statements to the authorities if they have a serious doubt as to the source of funds used, ensure the security of the transactions which they are responsible for toward non-resident buyers and sellers. Again, they will both check the transfer sent to them itself and the seriousness of the banks which have operated the transfer.
Thirdly, the tax regime applicable to a property purchased in France will also have to be explained to the non-resident buyer, including the costs, various taxes and fees as well the taxes that should be paid if the property is used as a primary residence or for rental investment purposes.
Taxation rules which will apply to the detention of the property and to its subsequent resale mostly depends on the choices made at the time of the purchase (as per the VAT, the capital gains, or the intervention of an accredited representative). Again, very different schemes exist ranging from exemption to heavy taxation.
To study all these aspects, the non-resident buyers of a property in France, whoever they are, should consult an attorney who will, before any commitment, counsel and secure their investment and Attorney/Counsel thanks to its unique and global service, supports the non-residents in all their projects by offering the services essential to conducting a perfect acquisition.
What are the benefits for foreigners of buying a French property through a SCI (Property Investment Company)?
Firstly, by transferring shares of an SCI (“Société Civile Immobilière”), the owners of a real estate property located in France enjoy several tax benefits. The SCI allows to transmit the property at a lower value and therefore enables its partners to pay less taxes than if the building had been transmitted directly. Indeed, when they are given, donated or transferred by inheritance, the shares of an SCI generally support less expensive taxes than the taxes applied to properties transmitted directly from individuals to individuals.
The reason is because the value of the shares is reduced by the amount of the accounting liabilities of the company. And the amount of the loan contracted for the acquisition of the property is included in accounting liabilities of the SCI.
Example, for a property worth € 500,000 funded by a bank loan for which an amount € 200,000 is still due, the inheritance taxes and levies are calculated on the basis of € 500,000 for a directly owned property, while the taxes and levies applied to the transfer of SCI shares will be calculated on a base € 300,000.
Secondly, certainly, the loan may also be taken into account for directly owned properties, but only under the condition that the beneficiaries of the transfer effectively become the new borrowers. Nevertheless, french Law allows this under several restrictive conditions:
– The loan must have been contracted in the interest of the property transferred (this will most often be the case) – The loan must have been contracted with a bank (this proves to be more problematic and offers less options than with an SCI, where lenders can be individuals, or another SCI, or a trust)
– The transfer of the loan must be included in the deed of transfer and must be notified to the bank (more possibilities are often opened to the SCI’s partners, as the SCI is the borrower, not the partners). And, last but not least, the practice shows that the transferees, or one of them, proves to be insolvent. Therefore, it is basically impossible to proceed to the transfer the loan when the property is held directly.
Thirdly, the SCI benefits from large advantages in matter of inheritance taxes and levies. It remains a tax and not least to consider: the IFI “Impôt sur la Fortune Immobilière”, the Tax on real estate, it replaces the ISF “Impôt Solidarité sur la Fortune” since January 2018. It should be noted that non-residents will be subject to the IFI because of the property and rights they own (directly or indirectly) in France, we are not going to make a development on the IFI but know that if his net taxable wealth is greater than 1.3 million, he will be subject to it. Please note it is possible to deduct a lot of debts to reduce the taxable amount.
For large heritage note that when the market value of taxable wealth is greater than 5 million euros and that the amount of the debts exceeds 60% of this value, the portion of the debts exceeding this limit is only deductible for 50% of this excess.
Fourthly, for civil reasons as well, and not for tax reasons, the SCI also appears to be very useful to non-resident owners of immovable property situated in France, when they want to transfer the property, as the SCI allows them to circumvent the effect of the french so-called hereditary reserve rule (“réserve héréditaire”).
Under this rule, which is specifically French, a large part of an individual’s estate must compulsory be transmitted to the so-called “presumptive” heirs (“héritiers réservataires”) : children, grandchildren, parents, or in the absence of descendants and parents , the surviving spouse.
Fifthly, under certain conditions it is possible to deduce the expenses of maintenance and repair, serving to maintain the property in the state. Also, it is possible to deduce improvement expenses if these expenses do not change the structure of the property.
Moreover, administrative and management expenses are also deductible (ex: security guard, supervisory agent, accountant’s fees which deals with the management of the property).
Finally, it is possible to deduce the property tax, which is one of the big advantages of the SCI subjected to the income tax! However, the owner will still have to pay the fee or the tax for household waste.
In terms of real estate taxation, what rules apply for non-residents?
We draw your attention that upon the acquisition of the real estate in France, the buyer should pay some fees and taxes (collected by the State and the various local authorities of the place of establishment of the property):
– Transfer taxes, which corresponding amount reaches 5.8% of the purchase value of the property or taking into account the increase in the departmental tax.
Once an individual or a household becomes the owner of a property in France, whether built or not, they also become is subject to:
– The property tax once per year which is equal to the cadastral income multiplied by the rates fixed by the local authorities.
– A housing tax, then concerning second homes the regime varies and based on the cadastral rental value of the dwelling and its outbuildings. In addition to the housing tax, the owner has to pay at the same time the public audiovisual contribution if he has one or more televisions.
– Moreover, some municipalities, provides a fee or additional fee for the collection of household waste.
Finally, since 1st January 2018, the ISF (Impôt de Solidarité sur la Fortune) has been replaced by the new annual real estate wealth tax, known as IFI (Impôt sur la Fortune Immobilière), which is a tax on immovable property whose taxable base is limited to non-business related real estate assets.
The premises used for the taxpayer’s main professional activity and property used for furnished rental activity (provided the landlord is a registered professional landlord) are also exempt from the new wealth tax.
IFI is based on the wealth of the household, including spouse and children. Unmarried couples living together are treated as one household for wealth tax purposes. Non-residents will only be liable for this tax based on real estate located in France. The tax threshold remains the same in 2019: €1.3 million (net asset value).
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