French Lifetime mortgage : an innovative financing solution for borrowers over 65
In France, lifetime mortgages are known as Prêts Viagers Hypothécaires. A French lifetime mortgage is a long-term loan secured on a French property. Unlike a regular mortgage loan, you don’t make any monthly repayments as the interest builds up on your loan each year. A Lifetime mortgage does not need to be repaid before you pass away or before you decide to sell your property. A lifetime mortgage is a way of taking out cash from the value of your home, without having to move.
Who qualifies for a lifetime mortgage?
To be eligible to release equity with a lifetime mortgage, you must:
- Be over the age of 65 and under the age of 85
- Own a residential property in France worth at least €200,000
- Want to release at least €70,000
- Be a full time resident in France
- Evidence a minimum level of income
Some typical reasons for releasing equity with a lifetime mortgage might be to:
- Adapt your home, so you can continue to live independently
- Renovate or refurnish parts of your home
- Pay one-off private medical bills, or receive ongoing care at home
- Help children and grandchildren with house deposits, weddings or other major events
- Pay off an outstanding mortgage, including the shortfall on an interest-only mortgage
- Fund leisure interests, a new car, a holiday, or visiting relatives abroad
How much can I borrow ?
The maximum loan amount depends on the property value and on the age of the borrowers. Typically, it is possible to borrow between 40% and 50% of the appraised value of your property.
When is the loan repaid ?
A Prêt Viager Hypothécaire would end:
- If ALL borrowers were to pass away
- If the mortgaged property was to be sold
- If the borrower decided to repay the loan early
What happens with my lifetime mortgage when I pass away?
A lifetime mortgage is designed to be paid in full when you (or you and your partner, if held jointly), pass away.
The people who deal with your estate will be given a reasonable length of time to repay the loan, which is currently 12 months.
If the value of both the loan and the interest is in excess of the value of the house, then the debt repayment is restricted to the value of the house and to no more.
Feel free to get in touch for further information.
In the press : The New York Times
Great write up on House Hunting in France by Marcelle Sussman Fischler in the International Real Estate section of the The New York Times
Glad that we were able to bring our small contribution.
Sale of a French property by a Non-Resident : Who needs to appoint a Fiscal Representative ?
Specific rules and regulations defining the requirement to appoint a Fiscal Representative when selling a French property are governed by CGI, article 244 bis A
In summary, the sale by a non-resident individual of a real estate property located in France requires the appointment of a tax representative, except under the scenarios for dispensation set out below.
Three scenarios allow for automatic dispensation from appointing a tax representative:
• When the seller lives, is based or is incorporated in an EU Member State or in another country party to the Agreement on the European Economic Area (EEA) which has signed a mutual administrative assistance agreement with France (Iceland and Norway)
• For sales of €150,000 or less. This upper limit is assessed for each seller.
• For sales allowing for capital gains exemption both in terms of income tax and social levies owing to the duration of ownership of the property (22 years for income tax and 30 years for social levies)
With effect from 1st January 2021 and due to BREXIT, owners of French properties residing in the UK will no longer be exempt. As such, all UK residents are now required to appoint a Fiscal Representative when selling a French property. The requirement to appoint a Fiscal Representative applies regardless of whether Capital Gains have occurred.
Who can act as a Fiscal Representative ?
The following entities and individuals are authorised to act as tax representatives:
• A company or organisation already permanently accredited by the tax authorities
• Banks and credit institutions carrying on their business activity in France
• The buyer of the property if he is resident of France for tax purposes
• Or any other person who is resident of France for tax purposes, except notaries and lawyers. In the latter category, the representative must be accredited by the tax authorities.
Who and when to appoint a Fiscal Representative ?
Accredited private companies authorised to act as Fiscal representatives are frequently appointed by the French notary at the time the sale takes place. It is not uncommon for the seller not to be consulted as French notaries often request the assistance of a Fiscal Representative company they are used to working with, without any necessarily operating a tender process.
What is the role of a Fiscal Representative ?
In essence, the role of a fiscal representative is to calculate the gain or the loss in value related to the sale of the property. The Tax agent is in charge of all the fiscal procedures including establishing and signing the forms required by the French tax administration.
A fiscal representative effectively guarantees the accuracy of the Capital Gains calculation and acts as a guarantor should the calculation be incorrect and if penalties are applied.
Because of Fiscal representatives are liable for any incorrect tax assessment, private companies tend to have a conservative approach when calculating Capital Gains Tax. This typically comes in the form of expenses or renovation costs not being recognised as items deductible in the CGT calculation.
What is the cost of a Fiscal Representative ?
Private companies accredited by the tax authorities will charge a fee ranging between 0.3% and 1% of the selling price of the property.
Individuals authorised by the French tax administration to act as Tax Representatives for a specific transaction can proceed free of charge.
Our advice is quite simply that sellers should consider the appointment of a Fiscal Representative and the calculation of Capital Gains Tax very carefully. As much as 1% of the sale price as well as actual Capital Gain Tax liabilities are at stake.
It is our recommendation that the following steps should be followed :
- Determine whether any tax exemptions apply to you
- Assess deductible expenses, reliefs and default fees to calculate your Capital Gains tax liability
- Search the market and compare options before appointing a Fiscal Representative
Please get in touch if you require further information or require assistance with this process.
Sourcing the right Term Life Insurance contract for your French mortgage
The majority of French lenders require that a Life and permanent disability insurance contract is arranged alongside a mortgage. This is a standard risk requirement and the policy must be underwritten by a French provider.
As an authorised mortgage and insurance broker, Bluesky Finance work with a large panel of insurance companies. We can source and arrange insurance policies which meet both the lenders’ requirements and your requirements.
We can arrange Term Life insurance policies :
– For individuals residing outside Europe, including the USA, South America, Africa or the Middle-East
– For borrowers aged 70 and above
– With a simple Health Questionnaire for amounts up to €1,250,000 for borrowers aged up to 45
– With a simple Health Questionnaire for amounts up to €800,000 for borrowers aged up to 55
– For policies requiring medical underwriting, all tests can be undertaken in your country of residence
Bluesky Finance featured in The Wall Street Journal
Find out what the WSJ had to say about Bluesky Finance THE WALL STREET JOURNAL
Everything you need to know about changes to French Wealth Tax
New rules governing French wealth tax came into effect on 1st January 2018. In this post, we explain what the changes to the law mean if you own a French property or if you are planning to acquire one.
Prior to the changes, French wealth tax (ISF) was assessed on all assets owned by the taxpayer when net taxable assets exceeded a threshold of €1,300,000. The basis for the wealth tax included worldwide assets for taxpayers domiciled in France and real estate assets located in France for non-resident taxpayers.
With effect from 1st January 2018, a new real estate wealth tax scheme (“Impôt sur la Fortune Immobilière” – IFI), is assessed only on the real estate owned by the taxpayer to the extent that the value of the taxpayer’s real estate net assets exceeds a threshold of €1.3 million.
All other assets (especially financial assets) are no longer subject to wealth tax. The five year exemption for property held outside of France for new French residents continues. As with individuals domiciled outside of France, those who have not been domiciled in France during the five years preceding their arrival on the French territory will only be taxed on their French real estate assets, until 31 December of the fifth year following the year of their arrival in France.
The new IFI scheme is governed by the same taxation scale as the former ISF scheme and similar rules as for the French wealth tax apply. More specifically:
- Real estate used in a trade or business are excluded.
- A 30% discount on the value of the taxpayer’s primary residence continues
- Mortgage debts related to taxable real estate assets can continue to reduce the wealth tax base
Mortgage loans as a lever to reduce French Wealth tax
With regards the deduction of mortgage loans in the wealth tax base, new rules specify that interest-only loans will be governed by similar rules as amortising loans. This rule also applies to existing interest-only loans.
For example, a 10 year €100,000 interest-only loan arranged on 1st Jan 2016 will be assessed as follows : for the purpose of reducing the 2018 wealth tax base : €100K – (€100K x 2) / 10 = €80K
French real estate assets with a gross value exceeding €5 million will also be subject to a deduction cap. In practice, when the mortgage outstanding balance exceeds 60% of the property value, the maximum amount of mortgage debt that can be used to reduce the wealth tax base is capped at 50% of the “excess” over and above the 60% cap.
For example, assuming a property worth €6 million with a €4 million mortgage :
60% cap : €6m x 60% = €3.6 m. Excess over the cap : €4m – €3.6m = 400K€. 50% of the excess : 200K€. total deduction from the wealth tax base: €3.8m
As a reminder, assuming the €1.3 million threshold is met, tax bands applicable to net taxable real estate assets are :
Real estate value under €800,000 – 0% tax rate
Real estate value €800,001 to €1,300,000 – 0.5% tax rate
Real estate value €1,300,001 to €2,570,000 – 0.7% tax rate
Real estate value €2,570,001 to €5,000,000 – 1% tax rate
Real estate value €5,000,001 to €10,000,000 – 1.25% tax rate
Real estate value €10,000,000 upwards – 1.5% tax rate
Annual wealth tax bill applicable to unencumbered French real estate assets would be as follows :
|Net taxable assets||Annual tax due|
|1 300 000 €||2 500 €|
|2 000 000 €||7 400 €|
|3 000 000 €||15 690 €|
|4 000 000 €||25 690 €|
|5 000 000 €||35 690 €|
Buying a property in France
Principles applicable in French property law go back to the declaration of human and citizens’ rights in 1789 “the right to property is an inviolable and sacred right, that no one can be deprived of …”
In addition to protecting property owners, the French legal system has, over the years, added a number of laws designed to protect the buyer and, as such, creates a very safe and heavily regulated purchasing environment.
After a property has been found and a purchase price has been agreed, the vendor and the buyer must sign an initial contract – known locally as the Compromis de Vente. In some cases, this document will be a standard contract held by a French estate agent; however, it can also be drawn up by an official of the government – referred to in France as a Notaire.
Once the Compromis de Vente has been signed by all parties, a seven-day cooling-off period begins. During this seven-day period, the buyer has the opportunity to withdraw from the purchase. After the cooling-off period has ended, the transaction becomes legally binding, and significant penalties are payable if either party should withdraw from the sale.
A conditional clause can be added to the Compromis de Vente stating that the purchase is subject to the mortgage application be approved by at least one lender.
A deposit of at least ten percent of the purchase price will normally be required – although it will remain in escrow with the notaire until the transaction completes successfully. In the event that a mortgage application is not approved, the compromis de vente becomes void and the deposit is refunded.
At this point you may wish to appoint your own notary to oversee all aspects of the transaction.
The appointment of your own notary does not incur any extra costs.
Role of the Notaire
The involvement of a notaire in real estate transactions is a legal requirement in France. He is a public official who has a monopoly over conveyancing. One notaire can be appointed to oversee the entire transaction; however, both the vendor and the buyer can appoint their own. The notaire will oversee all aspects of the sale to ensure all applicable laws are adhered to and that all taxes are paid. The notarial profession is strictly controlled by statute owing to the delegation of public authority. The profession is also monitored closely by its peers and if necessary by the judicial authorities.
A notaire will typically charge between six and eight percent for their services, and all fees are payable on completion of the sale. For the most part, notary fees are taxes set by the Government.
The average timescale for completion of the various searches and legal checks – undertaken by the notaire – is three to four months. A meeting will then take place between the buyer and vendor – or parties nominated to represent them by proxy. The final deed of sale – known in France as the Acte de Vente – will be signed during this meeting, and the property’s ownership will finally pass to the buyer.
Property Prices in France
The French housing market is expected to strengthen further in 2018. Strong demand for houses in France is buoyed by low interest rates. Find out more about the latest trends in French property prices.
Bank account and currency transfer in France
As your mortgage instalments will be debited from an account by Direct debit, you will need to open an account with a bank in France. Bluesky Finance can help you find a suitable retail bank and the right package for you.
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Capital Gains Tax in France
Capital gains tax – impôt sur les plus values – is a tax payable in France on gains arising from the sale of land or properties. Capital gains are calculated as the difference between the sale price and the purchase price or the value that was reported when the property was received as a gift or by inheritance. Rules governing capital gains tax vary in accordance with the sale price, the nature of the asset, the country of residence of the seller and how long the asset has been held. Capital gains made on the sale of assets are exempt when the sale price is under €15,000. Sale of a principal residences are totally exempt, regardless of how long the property had been owned. Capital gains achieved on properties sold when the property has been owned for 30 years or more are also exempt. In other cases, the vendor is liable to pay tax and social security charges (CSG, CRSG) on the net capital gains.
To calculate the amount of net capital gains, Gross Capital Gains can be adjusted by the following factors:
Home improvement expenses (extension, double glazing, new kitchen etc) are deductible from the sale price as long as the vendor has kept invoices and proofs of payments and has not already deducted these expenses for other purposes. Alternatively, the vendor may use a flat rate deduction equal to 15% of the purchase price. To be eligible, the vendor must have owned the property for at least five years. Sale fees can also be deducted from the sale price. These may include the costs incurred to complete the mandatory certificates and surveys (eg Energy Performance Certificate) as well as the fees the fiscal representative may charge.
Fees including stamp duties, notary and agent fees which were incurred when buying the property can be added to the purchase price. By default a flat rate of 7.5% of the purchase price can be used.
This is effectively an allowance for the duration of ownership.
Taper relief for tax purposes:
6% for the sixth to the 21st year of ownership;
4% for the 22nd year
Taper relief for social charges purposes:
1.65% for the sixth to the 21st year
1.60 % for the 22nd year
9% for the 23rd to the 30th year
Tax and social security rates :
Income tax rate applicable to Capital Gains Tax stands at 19%
In addition, social charges of 17.2% apply to Capital Gains Tax.
Additional taxes are also levied when net Capital Gains are greater than €50,000. Additional taxes payable are calculated as follows: