Should I go should I stay? Should I buy should I sell?
By Prof. Robert Anthony, Anthony & Cie
Many people today are rather confused. They see a government in France that frightens them. Property seems difficult to assess. Everyone says it is a buyers’ market. But how true is any of this? Taxation is becoming ever more complicated with each new finance act. Those living on retirement pensions see their net income falling and are worried about the future.
France is a country which is slow to react. Despite serious warnings from Brussels, the government has simply raised taxes and carried out very few public spending cuts. Many of the government agencies are significantly overstaffed as are the large financial industry companies. Labour laws make it difficult to change the situation. Unfortunately, the government has not yet understood that raising taxes in fact results in less tax being collected and also increases unemployment. Other countries in the European community such as Ireland, Portugal and Spain are resolving their problems whilst France just plods on as before. Does this really matter? If considering the overall picture, perhaps it does not.
Depending on the value of assets, it is possible to plan around the French bureaucratic issue and still have a great life in France. The health care system is superb, as is the food and lifestyle, if living a discrete life. The schooling is of a high standard and bringing up children is widely regarded as pleasant. However, there is certainly disparity in the financial means that are available to different people.
It is clear that the tax system is currently going through a socialist period of legislation. Low income individuals are generally favoured over the wealthy. This does not mean that it is not possible to work around some taxes through careful planning prior to becoming resident. Wealth tax on non-French assets for new residents first becomes due after five years. Inheritance issues can be structured before residency, if that is the intention. Non-resident investors can protect their estate prior to acquisition. For those that have decided enough is enough, careful thought, advice and detail can prevent having to pay capital gains taxes and those who intend to buy can avoid purchase taxes if they follow the right advice.
I am often asked about the state of the market. Depending on the town, small properties are often in high demand. Rural isolated properties require a different market to that in large towns and can be difficult to sell so, provided there are spare resources, now can be considered a good time to buy. For those wanting to play it safe, it is better to purchase in the large towns where there is a higher liquidity to the market place. There have been artificial markets in some parts of France, with Russian and Eastern European buyers leading to excessive price increases in certain properties on waterfronts and in ski resorts. This is mainly in the high luxury end of the market. However, the price has fallen in other areas due to the lack of buyers. If a seller needs to sell, they are compelled to take lower offers or even reduce the selling price.
In certain areas, wealthy sellers who do not need to sell will not be obliged to reduce the price. Consequently, there are currently disparities in the market. Some properties are overpriced and can be 30% more expensive than a similar property that has recently come to the market. France has always lagged behind the UK in terms of transactions, sometimes by as long as two years. As the UK market becomes more active, a strengthening of the French property market can be expected, despite the French domestic issues. This would start in the key locations such as Paris and the South East of France, progressively spreading elsewhere.
Investing in property should not be a quick strategy. With a little patience and detailed research of the local demand and dynamics, the envisaged reward can be reaped. So where does the above debate take us? Buying property should not be based on politics in a developed country like France. Politicians and parties change, as do the tax rates. A quality of life and adequate disposable income is important in decision making. Taxes are due on realisation, if appropriate, but not on gains, with the exception of wealth tax assets. This starts at EUR 1.3 million of taxable value being taxed from EUR 800,000. Budgeting the difference between countries can be a pleasant surprise. If it is simply a holiday home, then rates are due, and potential estate duties on death or gift taxes on restructuring.
So I suggest seeking advice before going further and it is possible to turn dreams into a reality and not a nightmare! Good luck. It is important to remember that regardless of the decision that is made, circumstances can always change, and exchange rates vary. Running costs need to be provided for and unforeseen unemployment with a poor market can cause quite a headache. Appropriate general insurance is necessary to cover future risks on the property and policies should be checked that they cover landslides, forest fires and earthquakes. If taking credit for larger files, ensure full understanding of the contract. Lastly, notaries are government officers and often represent both the buyer and the seller, who are introduced by the estate agent. So think about how independent they really are.
Prof. Robert Anthony
Anthony & Cie
T: +33 4 93 65 32 23
Professor Robert Anthony is an independent member of GGI (Geneva Group International), which has a global alliance of independent leading law, accounting, audit, management consulting and trust firms. Within GGI, Robert Anthony chairs a practice group of "International Wealth Management, Private Equity and Estate Planning".
Professor Anthony is a Chartered Certified Accountant (UK) and Certified Financial Planner (France). He is a Professor of International Tax Law at the Thomas Jefferson School of Law in San Diego, California. He is also the Principal Partner of Anthony & Cie, an international Family Office based in France, with offices in Sophia Antipolis (near Cannes) and in Paris.
published: July 2014