The rent index rates (RIR) continue to forge ahead. Indexed along the lines of inflation, the rating has risen by 1.90% over a one-year period during the third quarter of 2011, according to the INSEE (French National Institute of statistics and economic studies). It is said to be the highest increase since the first quarter of 2009.

Following the same curb as the price index, the rent index rate had dropped sharply during the crisis, before recovering from the third quarter of 2010. However, according to figures released on Wednesday (at the beginning of October) by the INSEE, inflation will rise up to 2.2% over a one-year period in September, despite a slowdown during the past month.

Because of the RIR’s progress, owners can charge their tenants more rents, even during a lease period, adding an extra 1.90% maximum per year. This limit is not to be confused with the increase that the owner can demand at the end of the lease, and which is not subject to this ceiling.

The rent increase is slowing down

Rent increases will level off, just like sale prices. According to the watchdog Clameur, rents charged to new tenants have increased by 0.9% over the first eight months of the year, compared to 1.4% a year ago. In 34% of French towns, there hasn’t been an increase at all; for example in Paris (-0.1%), Bordeaux (-0.9%) or also in Toulouse (-0.4%).

However, in other towns of France, rents remain on the rise like in Lyon (+1.2%), Nantes (+1.7%), Lille (+1.9%) or Le Havre (+2%). For the whole year, Clameur is expecting an average increase of 1.5% to 1.8% compared to 2.5% in 2010.

The watchdog Clameur notes wide disparities between the cities but also between the quality of the rented accommodation. Owners who make improvements to their French properties rent on average 9.3% higher to the new tenants than to the previous ones. On the contrary, when the property is rented without renovations, its rental value decreases by an average of 5.4%.

How to help your children acquire a property? With the rise of housing prices in France, more and more parents are asking this question. For young people, without any family to help, buying a property is usually difficult. Nevertheless, property is more than ever essential in building up capital.

A DONATION as  funding

With the recent patrimony taxation reform, each parent is able to give a total tax franchise ofup to 159.325€ (allowance in effect for 2011) for each child, every ten years, that is to say 318.650€ per couple. Moreover, if the child is over 18, he can benefit from an additional allowance of 31.865€ (if his parents are under 80). This enables the child to acquire a rather nice pied-a-terre, even  in Paris. This strategy offers the advantage of not increasing your own financial assets because your child immediately becomes the only owner. This way, parents can be exempt from  wealth tax if their net patrimony value remains below 1.3 million Euros or can benefit from tax cuts  if the net patrimony value is not more than 3 millions of Euros.

However, this concept has its disadvantages. “When the child reaches 18, he holds  full ownership of the property and  can sell it, at any time, without his parent’s consent” states Michel Brillat, manager of the French Financing Union. “To block any inappropriate attempts”, Louis Aussedat, a notary from the Altemis network, advises to include a banning of alienation in the donation act and in the acquisition act.. With this clause, the sale of the property is subject to the parents’ agreement.

It is possible to go through the process for the benefit of a child under 18 but you will need the approval of a magistrate. As long as the child is under 18, his property belongs to his parents’ property holdings with possible consequences in terms of wealth tax.

In a smaller way, if you have a property savings plan, you can transmit your lending rights to your child, as long as he himself holds a similar plan (open for at least 3 years).

Finally, you can be exempt from land registration tax (0.715%) if you give money first instead of a property that you already own.

BUYING AND PASSING ON by  SCI

Here, it’s the SCI (Societe Civile Immobiliere or Civil Property Company) that acquires a property and not you and/or your children directly. This enables funds and conveying to be done even more easily. The parents are associates and own the SCI’s shares. One of the main advantages of this legal structure is its flexibility. As long as  you rely on a notary or solicitor (about 2,000 Euros) to write up the statutes, all possible management schemes, or nearly all,  can be planned for serenely: full ownership or property without usufruct  only  given to the children, fully or partially, etc. The parents can take on the role of managers  to have a hand in the decisions and take care of all the formalities (General assembly, etc.). “In this configuration, the children, even if they’re over 18, can sell only with your consent” emphasizes Gilles Etienne, associate manager  from Cyrus Conseil. Moreover, the SCI can borrow, even if the children are under 18 and  associates. The only  imperative: to clearly fix, their responsibilities concerning debts with professional help, and obtain the Judge’s agreement. To finish, the SCI’s existence itself is not limited by time or value, just like the patrimony managed by the SCI, which isn’t fixed either.

Scellier Law: rent to your child

According to the Scellier Law, parents who live in France (and pay taxes on their French income), who buy a French property and benefit from a tax discount of up to 22% can rent it to their child.. There are only three conditions: the property must  be the child’s main residence, the child has to be separated from his parents’ fiscal household (he must pay his own taxes) and he has to pay the rent.

The new CGT version consists in:
- 2% abatement per year after 5 years of ownership until 17 years of ownership
- 4% abatement per year during years 18 to 24
- 8% abatement per year during years 25 to 30
- No CGT after 30 years

In another way, the tax rate for non main-residences will increase from 31.3% to 32.5% for French residents and will remain at 19% for non-residents.

As an example always give a better idea of the consequences, we compare the two CGT’s payable to a French property purchased at €100,000 with a price appreciation of 2% per year.

As you can notice, the impact on the net profit isn’t very important when you look at the net profit.
Another possibility to avoid paying the new CGT would be to turn the property as your main residence for a few years (subject to the appreciation of the French tax office) with a perspective of selling it.

What will happen next?

In the short term:
- French property owners who possessed a property for more than 15 years and who were considering to sell it will try to do it before the end of October to avoid paying the new CGT (it usually takes 3 months between the sale agreement and the signature with the notaire)
- It will Increase the offer with numerous properties arriving on the market
- Prices are expected to decrease until the 31st October 2011

In the long term:
- Properties which haven’t been sold before the deadline (notaire signature before 1st February 2012) will be taken off the market and owners will wait a few years to have more abatement.
- People who don’t have to sell will be waiting longer and less incline to negotiate the asking price
- Decrease of the number of properties on the market
- Prices will increase and get back to August 2011 levels

What to do?
September, October and the beginning of November are the best time to buy a French property. Numerous owners will sell their properties with a lower price to make a notarised transaction before the 1st February 2012.
Please note you need to keep in mind the deadline as you have to sign the “compromis de vente” 3 or 2 months before the 1st February 2012 (it is due to the verifications done by the notaire which can take some time). As you can also guess notary offices will be very busy in January 2012 but they will do their best to please everybody.

Happy hunting!

-          Increase public awareness to the importance of preserving the heritage of French country houses
-          Identify the buildings and sites threatened with destruction
-          Encourage mutual help in favor of promoting French heritage, with the aim of seeking funds from both private and public sources
-          Participate in the implementation of restoration programs

The foundation acts in favour of non protected sites which are generally more in peril than monuments already labelled or listed by  French heritage institutions.

The organisation does not only help properties but also outbuildings such as traditional bread ovens, barns, dovecotes, cottages, etc… In fact, more than 1000 sites a year are granted the foundation’s label. The help comes in the shape of fiscal discounts (partial or total depending on the condition of the building) if you start renovation works on the listed  site. Moreover, if your taxed amount is lower than 1300 Euro, the foundation can also send you some grants to help you with the renovation costs.
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The foundation receives its funding from 2 main sources:

-          Corporate sponsorship
-          State  subsidies
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Since its creation, 9043 projects have benefited from this label. However, these grants are not accessible to everyone. In fact, you will have to respect 3 main conditions in order to apply for this grant:

-          The site must be interesting in terms of heritage (must have a history and particular architecture)
-          The fiscal discounts won’t be granted if your renovation project lacks ambition
-          Visibility of most of the buildings from the road
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The foundation is having real boom as the fund total reached 8.3 million euros last year which represents a rise of 26% compared to the amount collected in 2009. Therefore we can expect more and more will be done to help private owners restore their monuments.
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The actions of the “Foundation du Patrimoine”, does not limit itself to private French properties but also helps monuments that are already protected  who urgently need help. For instance, the foundation launched an international appeal to receive funds to restore the last house of Napoleon Bonaparte on Sainte Helene, which had been considerably affected by terrible weather conditions.

This example perfectly illustrates the leitmotiv of the organization, which aims to make us understand that cultural heritage is the responsibility of all: associations, businesses, households, and governments.
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The organisation does not want to be labeled as old fashioned and nostalgic. On the contrary, this recent foundation is constantly looking ahead in order to offer a new life to all these monuments in peril. More than restoring, it’s about bringing back to life!
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Our old monuments mustn’t be considered  a burden; indeed the foundation sees the wealth and uniqueness of each and every one of these sites. And it’s a real lesson for all of us to change our opinion on old monuments.

You can find more information about la fondation du Patrimoine’s action on www.fondation-patrimoine.org

President Nicolas Sarkozy and Budget Minister Francois Baroin were put under pressure from senators representing French expatriates during a meeting on Saturday and decided to omit the measure from a French tax reform package set to pass to the Senate upper house on Tuesday, the daily Les Echos said.

The government hasn’t yet confirmed this report however.

The tax would have angered expatriates, whose vote could be key in what threatens to be a close race between the ruling conservatives and a resurgent left for the April 2012 presidential election.

The measure would have applied to some 360,000 properties belonging to foreigners or French people living abroad, out of a total 3.2 million secondary residences in France, and could have collected 176 million euros in taxes in 2012, around 490 euros per residence.

“French people living abroad found it very difficult to understand,” Les Echos cited a presidential source as saying.

The plan had also alarmed the tens of thousands of foreigners, mainly Britons, who own second homes in France.

Sarkozy is under pressure to fend off left-wing critics who say the current tax system has favoured a wealthy minority during an economic downturn that has left low income households struggling with stagnant purchasing power.

His reform bill, which is passing to the Senate following approval with minor tweaks by the  National Assembly, would scrap a tax shield that benefited the wealthy while also raising the threshold on a wealth tax to relieve some 300,000 households affected by soaring property prices.

Source: Reuters

Please find the latest update about CGT on French property (Sept 2011) click here.

After the purchase of a French house, taxes become digressive as the years go by. Normally, up to 15 years after the purchase of your French property there will be no more taxation. In all cases, the French tax is applied at the time of the sale in the offices of the notaire, and will be deducted from the sale proceeds before the cheque is handed over. According to the latest figures in 2011, the applicable French tax rate is 31.3%. It seems quite high but this tax rate is regressive. This sum comprises capital gains tax at the rate of 19%, plus 12.3% of social charges.

If you’re not classed as a resident in France but you are in the EU, then the applicable tax rate is 19%, as no social charges are payable. It is therefore far more profitable than if you are resident in France. Furthermore, the tax rate lowers to only 10% five years after the purchase as you can see on the graph below:

If you’re interested in making as many exemptions as possible, the most important exemption from capital gains tax in France regards the family home. For the tax to become effective, the property must be occupied by you on a habitual basis up to the time of the sale, although you don’t need to actually occupy it at the time of sale. This concession may be available for up to a year, but you will need proper reasons if so.

How to avoid paying this tax?

You are exempt of paying capital gain tax if it was your main residence. In order to benefit from this exemption, you are not allowed to let out the property during the sale period, or to leave family members in occupation. Fortunately for you, the French law does not state how long you need to have occupied the property for it to be considered as your main house. Generally, it is accepted that eight months is a minimum period for it to be considered as your main house (in order to escape the attention of the tax authorities). However, there are concessions, such as force majeure (natural disasters for instance), job relocation, death of a spouse…

Likewise, the tax authorities will normally expect you to have made an income tax declaration and you will need to be able to produce a taxe d’habitation (housing tax) in your name, in order for it be considered to have been your main residence. Should you live in two main properties all year round, then you will similarly need to supply a copy of the taxe d’habitation in order to prove your residence exists. It may well be preferable to have previously notified the tax office as to which of the two properties you consider your main residence.

Bank accounts:
To handle your day-to-day finances you will need to open a bank account and as in the UK, this is a relatively simple process in France. Opening a bank account means simply going into your local bank and filling in the forms. Identification such as your passport and a utility bill are usually required. Cheque books and debit cards usually arrive within a couple of days. However the operating rules in France are different and writing a cheque on an overdrawn account is illegal. You can be fined and even banned from owning a cheque book. Fees are generally higher and you will probably pay for each transaction as well as an annual charge for your debit card. French banks will allow you to pay in cheques in sterling but they will charge extra and tend to discourage customers from doing this regularly. Cash withdrawals on your card are always debited immediately but with other transactions, you have a choice between immediate or at the end of each month. Banks also offer deposit accounts, tax free accounts (up to a certain limit) and special account for young people aged under 25.

Non French bank accounts:
There is no reason why you can’t keep your UK bank account when you move to France. But you will need to check with your bank that this is okay and notify them of your change of address. Retaining a UK bank account can be very useful for when you return for trips or holidays or for when buying over the internet from UK suppliers. Some goods, for example greenhouses, are cheaper to buy in the UK even with delivery costs and having a UK sterling bank account makes this easier. You are legally required by the French tax authorities to declare all foreign bank accounts.

Currency transfers:
Currency fluctuations can have a serious effect on your income if you are relying, for example, on a UK pension in sterling that is transferred into your euro bank account. There are many foreign exchange specialists that offer forward contract services and you fix a currency rate for up to two years and effectively protecting yourself against major currency fluctuations. Regular payments plans are also available through currency brokers. Another currency protection option is to create a buffer investment by putting any surplus capital into euro investments.

Budgeting:
As you retire and draw your final salary, the day-to-day cost of living becomes ever more important. Working out your monthly living costs and creating a yearly plan of unavoidable outgoing costs can help with planning. Taking the time to shop around for the best deals could potentially save hundreds of euros and having an emergency cash reserve that is easily accessible can help avoid sudden large payouts.

Bank loans:
Banks and other lenders operate in a very similar manner to those in the UK although they do tend to be more cautious and ask for more information. To take out an unsecured loan you need to be resident in France and have a steady income. You need to provide proof of your income and there is a credit scoring system as in the UK. Many lenders charge an administrative fee and some require life insurance to be taken out. Types of loans are very similar to those available in the UK. Personal loans are usually for three months to five years and can be for any purpose. There are also car loans and home improvement loans.

Taxes:
There are two kinds of local tax, both based on the notional letting value of the property. The taxe foncière is paid by the owner. The taxe d’habitation is paid by the occupiers, regardless of whether they are tenants or owners. The amount varies from commune to commune and is means tested. If you are retired, you may get a reduction or be exempt. The French direct tax system is complicated and all taxation is through self-assessment. When you move to France, it is your responsibility to obtain a tax return from your local Inspecteur des Impôts. You are taxed as a family unit, with each spouse and dependent child being considered to earn a share of the household income. Unlike the UK, the tax year runs from 1st January to 31st December. The tax return, the déclaration des revenus, must be returned by the end of May. If done online the deadlines are a little later. There are fines and penalties for late returns. Tax is paid in the year following the year in which the income was earned. Wealth tax – l’impôt de solidarité sur la fortune – is tax on the value of your assets on the 1st January each year. The tax is payable on a banded system over and above a nil rate threshold. If you plan ahead, preferably before you move to France, you can legitimately put many of your investments out of the reach of the French tax system.

If you are having work carried out on a property, then it is essential that you should arrange to have something called Dommage et Ouvrage Assurance. This is in addition to buildings insurance and covers you against the builder or one of his men having an accident on your property. It will also help you to claim against bad workmanship.

Always obtain a devis (estimate) for any work that you intend to have carried out to your property. This should be quite detailed, showing a schedule of prices and the TVA against the various items of work.

You may require professional help in preparing this schedule which should relate to the ‘survey’ you had carried out when you bought the house. If you accept this devis then you should sign a second copy with the builder which then becomes a fixed price contract if work is started within three months.

Don’t forget, some alterations to the house will require planning consent. Respect the local traditions. If you paint your house pink when all the others around you are white then expect trouble! Lastly, make regular visits (if you’re not ‘camping out’ at the property!) to ensure that the building is going to plan. Your architect or Maitre d’Oeuvre should be present to explain progress. At the purchase stage insist on a clause in the compromis de vente to the effect that the purchase is subject to successfully obtaining all necessary permis de construire and certificate d’urbanisme for the proposed alterations to facades and usages respectively.

The benefit and satisfaction of renovating a property is that you finish with a home that pleases you because your ideas and designs have gone into it. It hasn’t cost more than you can afford because you have controlled the expenditure. If you do not over specify i.e. don’t go for gold-plated taps and William Morris wallpapers (unless you want to, of course) – you will finish with a property with a higher re-sale value in comparison to the money you will have put into the project.

The main disadvantages are that the work to your home may take some months to complete and you will have to patiently wait until you can use it. You will also have to commit a fair amount of time and attention throughout the project. It is for you to decide.

The conception of an eco-friendly district is twice as long in France than in other countries, and a period of 4 to 5 years is needed between the planning of a city centre redevelopment and groundbreaking: our town planning rules make us waste a lot of time. Add to that unwelcome surcosts when today France lacks housing.

There has been a strong command from the President on urban planning reforms. He mentioned it again at Le Havre some days ago, highlighted Benoist Apparu.  His working parties have been working on it for several months.

And yesterday, the four working parties created for the occasion and composed of housing professionals and local councillors, announced their suggestions in front of Nathalie Kosciusko-Morizet, the Minister for the Environment, and Benoist Apparu.  The last arbitrations will be given late May so the rulings go to the council of Ministers before summer and are applied after the summer break.

First constituent of the reform: building permits. “Working parties advocate that the registration of a building permit only becomes obligatory from 40 sqm compared to 20 sqm currently.  Benoist Apparu added: “It is necessary for French people to be able to expand their home easily”. Also, the time frame for building permits may be reduced. Thus, in a conservation area, households may only wait 5 or 6 months instead of more than a year.

To boost the construction industry, the government also wants to play on tax reductions. At present it is in the interests of those owning a plot of land that hasn’t been built on to keep it for as long as possible. Indeed, in the course of time, prices keep increasing and taxes get lighter.

Capital gains tax should see a 10% reduction in five years, meaning tax exemption after 15 years. “For a plot of buildable land that hasn’t been built on yet -and only in this case- we want these reductions to be removed.

Benoist Apparu explains that the capital gains tax will be the same for a plot of land sold after a year or after 15 years in order to fight against the retention of ground rent.

An evolution which adds to the overhaul of building permit taxes which was voted late 2010 and reduces from 17 to 5 the number of taxes to pay for the issuing of building permits. This will make buyers lives easier without however reducing their bill (the amount of the 5 taxes being the same as that of the 17).

“We are also trying to change the way we calculate property surfaces so it becomes more in keeping with the Environment round table. Nowadays, in the administrative count, a household that installs insulation panels on the walls of their accommodation undergoes a surface decrease. This should not anymore,” details Benoist Apparu. A precaution that could increase prescribed surfaces of apartments and houses by 10%.

The United States is desperately trying to stimulate the economy using the interest rates.

On this side of the Atlantic a dangerous denial reigns with the upturn of bonuses and exorbitant advantages of banks and even more of the so-called “ghost banks”. The Dow Jones is well ahead as if the outside world didn’t exist. It has risen by 200 points (1.7%) while Bagra is being bombed by Gaddafi.

This increase is a complete surprise for everyone. Indeed, markets and investors thought that the European Central Bank would follow the same route for the rates of the Euro as the Federal Reserve did for the dollar.

This rise of the interest rate implemented by the European Central Bank is very fundamental. It is a careful management of the current imbalances.
It will permit a fight against inflation. The European Central Bank takes into account an environment in the Eurozone which is more and more affected by price tensions. We can’t ignore the tensions over the oil markets, even if they’re not natural, but essentially due to the speculation. What’s happening in the foodstuffs market is even more scandalous. Harvests are good, but prices are increasing. The difference goes straight into the pockets of wheat, sugar, rice, cocoa, coffee traders … and many more.
It also adjusts the levels of rates by integrating which has becoming a dangerous business in the Eurozone. When it takes out a loan under its name, the Eurozone doesn’t have the mark AAA and it pays a half percent more than Germany. It also takes into account the fact it has at least four countries out of seventeen in difficulties, and a few others which could follow their bad example.
The European Central Bank needs to carefully manage the risk of its own affairs which have rocketed further with the purchasing of sovereign bonds from these countries. It does it with lower rates to those who prevail over the markets. So it has decided to go one step further and gradually transfer the responsibility of these bonds to private investors. By doing this, the Bank will recreate margins for manoeuvre essential for future interventions.
It also send a message to banks : the interest margins of their loans are very generous as they supply the bonus-paying machine to undeserving traders, but also benefit from the gap of exorbitant rates between their borrower rate and active rates that they have in their portfolio.
Finally it breaks certain illusions: the situation couldn’t go on forever. The recent booms of the Paris real estate market have created a bubble which is supplied by easy money. To avoid a brutal correction, the increase in price of borrowing money is an efficient way to slow down an enthusiasm which benefits principally to landowners who do not really need this largesse.

So if you are going to buy a French property and need a mortgage here is some advice: take out a long term mortgage with fixed rates before April 2011!

For more information and advices do not hesitate to contact Sextant French Mortgages on 020 7428 4918 or by email on info@sextantmortgages.com