French Legal Q&A – What to do with retained UK property
Our French Legal expert, Matthew Cameron, explains the options for those with properties in both France and England in our Q&A below.
“My husband and I are in the early stages of purchasing a property in France and would like some advice about what to do with our property in the UK. We bought it 24 years ago and now own it outright. We could either rent the property out or do we buy 2 smaller properties to rent out? What are the implications for Capital Gains Tax for either option?
We both have private pensions that we can draw down in 3/4 year’s time when we reach the age of 55 – what is the best provision for these? And lastly, we have straightforward mirror English Wills – we’ve been married to each other for 30 years and have 4 children. We have read about a ‘tontine clause’ to go into a purchase to enable either one of us to stay in our French home after our day, and the children will inherit the house after we are gone. Is it a tontine that we want?”
This question raises a number of points that can be addressed in turn. Inevitably it is only possible to set out a few pointers in a brief piece such as this. It is probably fair to say that there is not really an absolutely right answer, and certainly not one that would be suitable for everybody.
It is of course quite common that people moving to France permanently may want to retain a property in the UK, and so how to deal with this should always be considered as part of the plans. For those who need to sell their UK house before moving to France – perhaps because they have to use the funds to purchase the French property – a whole separate set of questions need to be thought through.
As to whether it is going to be preferable to rent out the existing property or buy two smaller ones, there certainly is no right answer. It may depend on the location, style and state of the current house, as well as the local market. A local property expert might be well-positioned to offer some guidance in this respect.
However, what is clear is that once you have bought the new home in France, the purchase of one or two new properties in England or Northern Ireland (different rules may apply in Scotland or Wales) would give rise to a Higher Rate Stamp Duty Land Tax charge. It is common knowledge that buying a property in the UK potentially generates a charge to SDLT (or the Welsh or Scottish equivalents); however subject to a set of criteria being fulfilled, where you buy a property which is – broadly speaking – not going to be your new main home, a further tax charge of 3% will apply.
That extra tax charge can clearly have a substantial impact on the overall cost, so might well be an important influence on whether to keep the previous family home or buy new ones. On the other hand, the family home might be in need of work to bring it up to good rentable quality: work that a new buyer may have been prepared to carry out but would deter a new tenant.
On the issue of capital gains tax, this would apply if a UK property were sold either a long time after it has ceased being the family home, or if it never was. Capital gains tax is derived from the effective profit made on the sale of a property (or certain other assets) over and above the initial purchase price and other allowances, like the cost of works and professional fees relating to the property. Apart from selling the current family home in advance of, or shortly after, the move to France, if the sale of a property in the UK is to take place it would be prudent to seek advice on the likely exposure to capital gains tax.
Without going into a detailed analysis of how capital gains tax works, both in the UK and France, there is not much more to add here. One further point is however noteworthy: if you retain a property in the UK, whether it is rented out or kept as a ‘bolthole’, it would not give rise to any capital gains tax unless it is sold. So if you retain it until you die, no CGT would be charged. It will be included in your estate for the purposes of calculating inheritance tax, although is a completely separate issue, and depending on your circumstances, there may well be no inheritance tax applying. Again, this should be the subject of a detailed analysis by professionals.
It is also of note, that CGT can apply not only when a property is sold, but also if it is given away. So if you gift a house to your children, this could generate a tax charge.
Let us turn then to the matter of pensions and investments. This is itself a highly complex area. There are many international independent financial advisers, and it is wise to seek advice in advance of any move. Importantly, some financial arrangements that may be tax-efficient in the UK may be treated differently in France, and advice should be sought from professionals with expertise in both jurisdictions.
So finally we turn to ownership structuring. At risk of sounding repetitive, detailed professional advice should be sought from solicitors with expertise in French and English law, and this in advance of the purchase. Nevertheless, it is fair to say that insertion of a tontine clause in the purchase deed is unlikely to be the most suitable option, as this structure can lead to other complications. It is more likely that a review of the existing Wills, potentially with these being updated (and possibly with new French Wills being added alongside or replacing the English Wills) would allow for the couple’s plans to be met.
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