Tax advantages for owners of bare title carrying out works on their French property
A popular tool to convey a French property to one’s children is to gift them the bare title to it (nue-propriete) while retaining the right to occupy it and receive income from it. This can be done tax free up to the amount of the children’s allowance of 156,000 euros per child and per parent. A single child can therefore receive double this amount from his two parents. There will typically be a clause of reserve of usufruct in favor of the surviving spouse so that on the first death, he/she will keep the right to enjoy the property and income from it for life. On his/her death, the full title will be reconstituted on the children’s head tax free.
Pursuant to article 605 of the French Civil Code, the holder of the bare title is responsible for major repair works. Since 1 January 2009, they can deduct the cost of such works from their taxable income in France. Prior to this reform, such deduction was only possible if the property was rented by the usufruct holder. This requirement is now removed and the bare owner can deduct the cost of the works even if the property is occupied by the usufruct holder, by the bare owner himself or any other person occupying the property either against a rent or for free.
There is however an annual ceiling for the deduction of 25,000 euros. If the amount of the works carried out exceeds this limit, the balance can be carried forward against the income of the next ten years.
If the property is rented out by the usufruct holder in normal conditions (proper lease agreement, effective rent…), and if the usufruct holder is taxed for such rental income in the category of real estate income, the bare owner may elect not to opt for this deduction capped at 25,000 euros. He has the option to deduct the cost of the works from his own real estate income in the normal conditions of deduction of property costs. This is particularly advantageous for bare owners who have paid a high cost for works and who receive, from other properties they own in France, significant real estate income, as it enables them not to be limited by the annual deduction ceiling of 25,000 euros.
This is a mere illustration of one of numerous tax advantages which may be enjoyed by British investors in France, at a time where real estate prices in France are at their lowest in a very long time. Another trend is for tax advantages for works aimed at making properties greener.
Hervé Blatry
Avocat
TEE FRANCE
STANLEY TEE LLP
High Street
Bishops Stortford
Herts CM23 2LU
Tel 01279 710621 and 01279 710654
[email protected]