3 Ways of Investing in Real Estate in France

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Depending on your profile and what type of investment you want to make, there’s an array of legal tools available under French law to allow you to customise your investment. Discover several ways of investing in real estate in France.

Buying Direct

This is the most widespread way of going about it, with most owners in France preferring to buy direct. It’s standard practice.

The tax regime involved is simple and doesn’t involve any surprises. Income earned from renting out the property is taxed as real estate revenue. If the property is sold, the owner pays tax on any capital gains made. If they have owned the property for more than 22 years, however, they are exempt from tax on any capital gains.

In law, buying direct comes under the regime of joint ownership. This regime protects married couples and couples who have entered into a “PACS” civil solidarity pact and their descendants, in the event of death or divorce. The situation is, however, slightly different for common-law partners. The rule according to which “no-one can be forced to remain in joint ownership” allows the heir of a deceased common-law partner, for example, to sell the property they jointly own with the remaining partner, without obtaining the latter’s prior consent.

Overall, whatever your official setup as a couple, in the event of dispute between the different owners, the joint ownership regime offers fewer possibilities in terms of compromise.

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Buying under a System of “Split-Ownership”

When one person buys the bare ownership (“nue-propriété”) of a property and another the usufruct (“usufruit”), we talk about a “split” purchase.

The legal instrument pursuant to which the property is split determines the amount incumbent upon the bare owner, which is generally 50-60% of the value of the property. The bare owner cannot, however, live in the property. Only the usufructuary (who has invested the remainder) can occupy the property and lay claim to any rent. After a period of time set out in the contract, the bare owner becomes full owner without having to pay out a cent more.

Splitting ownership is very often entered into in a family context, and can last until the death of the usufructuary. That is known as life-long split ownership.

For as long as the split ownership lasts, the bare owner is not liable to pay tax on the property, which is incumbent upon the usufructuary. If the bare owner is subject to wealth tax, the property doesn’t get included in their assets. It’s a good way of passing on family assets because if the bare owner is a descendant, they won’t have to pay inheritance tax on the death of their parents in order to become full owner of the asset.

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Purchasing via an “SCI” Property Investment Partnership

A “Société Civile Immobilière” is a partnership whereby several people (the partners) decide to own one or more properties jointly. They share the profits and undertake to contribute towards any losses in proportion to the number of shares they own in the company.

A manager is appointed and the partners each have the right to vote under the conditions set out in the partnership agreement. The Articles of Association drafted by the partners can provide for a condition of the sale of a property to be the prior agreement of all the partners, which is a useful tool to avoid the family’s estate being squandered in the event of certain beneficiaries not seeing eye-to-eye.

SCIs can offer some interesting possibilities as far as transferring shares is concerned. As a legal entity, it can take out loans in its own name. And unlike classic gifts, which are taxable in full (except if you’re entitled to a deduction of some description), gifts of shares in an SCI take the debts associated with the property into account. In some cases that can make a significant dent in the bill.

For non-residents in France, the SCI can be an excellent way of alleviating inheritance tax. Numerous international agreements provide for the local tax regime to apply on the transfer of shares in an SCI. That means that even if all the SCI’s assets are located in France, French inheritance tax regime won’t apply. Which is often a winning solution for expat families.