Season’s greetings from all at AntCo
The first question arises when one wishes to rent is whether the house is furnished or not. The second issue is the value of the property. Obviously, one does not wish to unnecessarily complicate ownership. There are several aspects to consider. It is very important to consider how one owns the property and what is the best way to structure based on one’s own personal circumstances.
If one examines renting a property and wishes an income to maximise the return on investment obviously renting it will bring in income. If it is rented with services in France as a professional of furnished rentals, sales tax (VAT) is due at 10 % on top the gross rental income. The services have three out of four options. Cleaning. Bed linen, the provision of breakfast and a service of a reception. People often consider these services in order to reclaim vat at 20% included in the purchase price of a new property. This vat is definitively acquired over 20 years. Should one sell or change to stop services the vat is repayable pro rata to the balance of years left out of the 20. Partial years are considered a full year repayable. Other consideration is that renting furnished is a commercial activity. Using a civil code company leads to automatically being under corporate taxation. This results in losing tapering relief for capital gains tax purposes.
When renting a property, one needs to consider what is an expense and how one can reduce the taxable rental income. When improving a property, the future capital gains is calculated on what is a capital expenditure. In addition, where the money comes from to pay the expense has now become important to justify the arms’ length transaction. Today these historical expenses are causing serious problems for some clients that are unable to prove the origins of the funds they used to carry out these works. The invoices also need to be correctly addressed to the company which is unfortunately not the case. Historically paying in cash can simply exclude the costs creating additional taxation than is necessary, clients lose out on what they gained by paying capital gains taxes.
Many clients wish to use corporate funds to buy a personal property. Generally speaking, this causes problems for non-residents in their country of residence. It is an abuse to apply corporate money on a personal asset and could be considered as a distribution from the company with the tax consequences. In addition, in some countries it is a criminal act to use corporate funds for personal use.
When buying there are several matters that need to be reviewed. Planning for estate wishes in case of death needs not to overlook the French forced heirship rules. These can create problems as unless properly planned there can be considerable estate duty as well as the problem of whom one’s estate goes to. In France one can’t generally disinherit children. This leads to problems when there is children from a second marriage belonging to one of the couple. People outside of the European Union therefore often consider utilizing a Monaco civil code company. Obviously, the materiality meaning value of the purchase is relevant when considering this option.
Debt is always interesting when purchasing a property. It reduces the value of the property of the estate. It also when the property has a value in excess of 1.3 million euros reduces wealth taxes if they are assessable subject for non-residents double taxation treaty with France. Generally, for non-residents this tax is due unless properly structured. Laws have changed since January 2018 and those persons with existing properties with debt should seriously consider reviewing their situation. Loans with the change of law prior to this date which are by the shareholder to their property investment company have become deductible for wealth tax purposes which were not previously. However, a bank loan is now depreciated during the life of the loan. Advice should be taken as to how this effects each case.
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