Gifting french property
Discussion
My Wife's parents have been talking for a long time about "signing over" to us a small house they own in France as a gift. Now most people would be grinning like a Cheshire cat at the thought of a free holiday home abroad but I am very reluctant as I don't understand at all what the tax, financial and legal pitfalls are with doing something like this.
The other area of concern would be the upkeep. We would probably have to rent it out as a holiday cottage in order to cover the bills and maintenance. This is what my father- in-law has done. He has offered to carry on renting it out and paying the bills for us after we take ownership. But I am concened about what liabilities (financial and otherwise) I would have if someone else is effectively renting out a property I own.
What are your thoughts. Any advice?
The other area of concern would be the upkeep. We would probably have to rent it out as a holiday cottage in order to cover the bills and maintenance. This is what my father- in-law has done. He has offered to carry on renting it out and paying the bills for us after we take ownership. But I am concened about what liabilities (financial and otherwise) I would have if someone else is effectively renting out a property I own.
What are your thoughts. Any advice?
Are the current owners of the property UK tax residents?
If they are, they could be charged Capital Gains Tax based on the Market Value of the property less what they originally paid for it.. Under UK tax law, the "gifting" of the property is looked on as a "disposal". Even though they receive no cash from you for the property, they might have to pay CGT based on the Market Value of the property at the date of disposal. This could be difficult for them as they will have no proceeds on disposal out of which to pay the CGT levied. CGT on such a transaction would urrently be charged at 18%.
If they are, they could be charged Capital Gains Tax based on the Market Value of the property less what they originally paid for it.. Under UK tax law, the "gifting" of the property is looked on as a "disposal". Even though they receive no cash from you for the property, they might have to pay CGT based on the Market Value of the property at the date of disposal. This could be difficult for them as they will have no proceeds on disposal out of which to pay the CGT levied. CGT on such a transaction would urrently be charged at 18%.
Eric Mc said:
Are the current owners of the property UK tax residents?
If they are, they could be charged Capital Gains Tax based on the Market Value of the property less what they originally paid for it.. Under UK tax law, the "gifting" of the property is looked on as a "disposal". Even though they receive no cash from you for the property, they might have to pay CGT based on the Market Value of the property at the date of disposal. This could be difficult for them as they will have no proceeds on disposal out of which to pay the CGT levied. CGT on such a transaction would urrently be charged at 18%.
They are uk tax residents. That's a surprise, I would have thought we, the receiver of the gift, would be liable for something. I assume then, I would only be liable for CGT if I decided to dispose of the property at a later date. I'll do some reading on CGT.If they are, they could be charged Capital Gains Tax based on the Market Value of the property less what they originally paid for it.. Under UK tax law, the "gifting" of the property is looked on as a "disposal". Even though they receive no cash from you for the property, they might have to pay CGT based on the Market Value of the property at the date of disposal. This could be difficult for them as they will have no proceeds on disposal out of which to pay the CGT levied. CGT on such a transaction would urrently be charged at 18%.
Yes, you would be liable to CGT as and when you eventually disposed of it. You woulod not have paid anything for the property at the date you acquired it so you wouldn't have a "base cost" as such to offset against teh sale procededs. However, for CGT purposes, you are allowed deduct the Market Value at the date of acquistion as your "base cost".
audidoody said:
You will need the services of a notaire. Property transactions in France are fairly complex with all sorts of weird and wonderful restrictions on who can and can't inherit the property and tax implications.
Google
"English-speaking notaire"
One of the reasons they are looking at transferring the property to us now is to avoid the issues you mention with inheritance they would leave behind should the worst happen. I don't understand it myself yet but I believe property left in a will can end up with many family members having a stake in it, making it quite complex, and potentially stressful, to dispose of. Is that something like what happens?"English-speaking notaire"
Any more info on what tax issues we might face in France?
In terms of a notaire, I believe my Father-in-law has someone suitable he has used before, as he owns a few small properties.
If your wife is an only child then she would automatically inherite, if not it is shared between siblings.
I think the only way is to sell it to you at market value to comply with French law but that would cost around 10% of the value in fees.
I think you must talk to a Notaire to ensure that you comply with French inheritance laws as it could be see as a way of cutting out siblings from the rightful share under French law.
VERY complicated DO take advice.
I think the only way is to sell it to you at market value to comply with French law but that would cost around 10% of the value in fees.
I think you must talk to a Notaire to ensure that you comply with French inheritance laws as it could be see as a way of cutting out siblings from the rightful share under French law.
VERY complicated DO take advice.
leyorkie said:
If your wife is an only child then she would automatically inherite, if not it is shared between siblings.
I think the only way is to sell it to you at market value to comply with French law but that would cost around 10% of the value in fees.
I think you must talk to a Notaire to ensure that you comply with French inheritance laws as it could be see as a way of cutting out siblings from the rightful share under French law.
VERY complicated DO take advice.
Wife is not an only child, which is the crux of the matter. Her Dad wants to make sure this house goes to us only. Unfortunately, if it means us buying it at market value, that sort of defeats the object. As you say, a clued up English speaking Notaire is the way forward.I think the only way is to sell it to you at market value to comply with French law but that would cost around 10% of the value in fees.
I think you must talk to a Notaire to ensure that you comply with French inheritance laws as it could be see as a way of cutting out siblings from the rightful share under French law.
VERY complicated DO take advice.
audidoody said:
Thanks Audidoody, this page in particular appears relevant to our situation and offers some hope that it may not be too complex. http://www.french-property.com/guides/france/finan...If I'm reading it correctly, the house could be transferred to us as a gift with my Father-in-Law retaining "usufruit" rights. Effectively allowing him to use/rent out the property for the rest of his life. My Wife (assuming it was transferred to her name) would have a "nue-propriété" interest, meaning although she would own the property immediately, until her Dad's interest in it was finished (upon his death) we couldn't do much with it. After that it would be fully hers.
The property could be liable for French gift tax when the transfer is made, but as I think it has a value of less than €30,000, it comes in under the threshold.
The only major expense are the Notaire's fees, which would be applicable at the same rate as if the house was being sold in the normal manner.
I still need to get my head around if and how joint ownership affects things, and what happens if one partner dies before the other. Also, I'm guessing UK CGT still applies on top of all this???
Eric Mc said:
Read my post above.
I did, but the thing I was trying to understand was whether two separate tax systems can apply the same time. I was rather naively hoping, as we're all in the EU, that if you assessed the property transfer under the French tax system, paid the relevant tax (in this case zero), you wouldn't then have to do the same in the UK. Or the other way round.I assume from your response, that is not the case. Had the property been worth more than it is (more than about €130,000) my Father-in-Law would end up paying tax on the gift in both France (as a gift tax) and the UK (as CGT).
There is a treaty called the Double Taxation Convention, which I confess I have not had time to read fully yet, but I know it does relate to CGT in some way. The general purpose of the treaty seems to be to set out in which country tax is paid and to prevent it being paid twice. http://www.hmrc.gov.uk/international/france2.htm
Under most DTA set-ups, you pay tax in one country and offset that tax paid against any additional liability arising in the other country. If there is a shortfall, you have to pay the balance.
The main point is that I am pretty sure that the disposal of the property will still need to be returned to the UK tax authorities, whether or not any UK CGT end up being payable.
Obviously, in matters of CGT you will need to get some specialist advice regarding how the two capital taxation systems interact.
It does amaze me that people embark on foreign property purchases without finding out the tax implications when the property is eventually disposed of - which is bound to happen at some point in the future. It should be an integral part of the property buying decision.
The main point is that I am pretty sure that the disposal of the property will still need to be returned to the UK tax authorities, whether or not any UK CGT end up being payable.
Obviously, in matters of CGT you will need to get some specialist advice regarding how the two capital taxation systems interact.
It does amaze me that people embark on foreign property purchases without finding out the tax implications when the property is eventually disposed of - which is bound to happen at some point in the future. It should be an integral part of the property buying decision.
Eric Mc said:
It does amaze me that people embark on foreign property purchases without finding out the tax implications when the property is eventually disposed of - which is bound to happen at some point in the future. It should be an integral part of the property buying decision.
I don't disagree with this point. My Father-in-Law may know much, or all, of what needs to happen. Or he might not. I am just trying to make sure I know as much as possible before I get involved so that I can ask some intelligent questions to determine the best way forward.Not read the links so sorry if I repeat anything.
I researched CGT a few years ago when buying my place, so a little out of date but to summarise my understanding at the time:
In France CGT is complicated itself but broadly applies to the gain less documented improvement expenses. Worth making sure all improvements are documented and paperwork present before doing anything. French equivalent CGT rates start reasonably high (35% ish I think but cant rememeber exactly)and falls away with time, so the longer you own the place the less you pay. It bottoms at roughly 15 yrs after purchase.
If its been owned long enough CGT probably wont be that great, but (again as I understand it) if it is paid in France you probably wont have anything else to pay in CGT in the UK as French Regs always apply. If the gain is very high it is possible though so you should check with your tax office.
The legal transfer does incur tax (about 10%) via the Notaire as you know.
I also 'understand' the issue in France around inheritance is that you cant by law disinherit children, hence why there is so much joint ownership of property and split 'parcels' of land. So one key piece of advice you should seek are the rules as it relates to whether a 'gift' earlier in life qualifies as disinheriting other children. I would guess there is a time limit before death as per UK but dont know for sure.
I researched CGT a few years ago when buying my place, so a little out of date but to summarise my understanding at the time:
In France CGT is complicated itself but broadly applies to the gain less documented improvement expenses. Worth making sure all improvements are documented and paperwork present before doing anything. French equivalent CGT rates start reasonably high (35% ish I think but cant rememeber exactly)and falls away with time, so the longer you own the place the less you pay. It bottoms at roughly 15 yrs after purchase.
If its been owned long enough CGT probably wont be that great, but (again as I understand it) if it is paid in France you probably wont have anything else to pay in CGT in the UK as French Regs always apply. If the gain is very high it is possible though so you should check with your tax office.
The legal transfer does incur tax (about 10%) via the Notaire as you know.
I also 'understand' the issue in France around inheritance is that you cant by law disinherit children, hence why there is so much joint ownership of property and split 'parcels' of land. So one key piece of advice you should seek are the rules as it relates to whether a 'gift' earlier in life qualifies as disinheriting other children. I would guess there is a time limit before death as per UK but dont know for sure.
Gassing Station | Finance | Top of Page | What's New | My Stuff