France has long been popular for those wanting an investment property. For some it’s a way to get a foothold in the country with a permanent move planned for later, buy now, rent and move in later. For others it’s purely about profit. We asked Robert Kent of Kentingtons, professional tax and financial advisors in France to share their expertise for how to maximise your chances for success when it comes to French investment properties.
Is buying a property in France a good investment?
With the costs of renting out property spiralling, increasing property taxes, energy efficiency surveys and other costs, it’s very appropriate to ask if buying a property in France makes for a good investment.
Property taxes in France
In recent years we’ve seen new taxes introduced and increased. The annual taxe d’habitation, which was abolished for main residences from 2023, still applies for investment properties (eg rentals) and is payable by the landlord. This is a change from previous years when the tax was paid by the tenant. The annual taxe foncière, payable by all property owners, has increased significantly in most areas. And there are also considerable increases in the so called “garden shed tax” and other small taxes.
Rules and tax changes apply to everything, and property is no exception.
Make your investment work for you
People will always need somewhere to live – demand is strong in France. But you need to consider the risks versus the results, the pros and the cons and avoid making mistakes that are common, and preventable.
We’ve all heard that phrase “as safe as houses” but if you’re not planning for a property investment strategy for the long term, it’s mostly likely not going to apply. Like any investment planning, property investments should be backed up with considerable financial planning. In my experience, most people who do badly, on any investment, tend to make one of two simple mistakes:
1) They do not plan for markets to implode. They have no contingencies, and they’re forced to sell at the worst possible time. Basically, they’re compelled to sell because they need the money quickly.
2) They panic when things look bad and sell as quickly as possible – usually at the worst possible point.
Income planning is a vital part of any investment strategy. Often, it’s a matter of market timing when it comes to selling, and if you plan carefully with income, you will be able to have control over that timing, whatever is happening in the world.
Have a contingency
Unlike with stocks and shares you can’t easily get a daily or weekly valuation. That inability to monitor pricing volatility often saves people from themselves. One of the world’s most successful investors, Warren Buffet, said “Benign neglect, bordering on sloth, remains the hallmark of our investment process.” It is easy to “neglect” volatile asset values if you cannot monitor them on a regular basis, even if you are a very anxious investor.
One of the big mistakes that people make, is to rely solely on rental income, with no contingency in place. When a property becomes vacant – the money dries up. Property can sometimes go from a seemingly easy guaranteed income – to nothing.
Property is not a liquid investment and that why you really need a contingency. There is no guarantee that a property will always be rented all the time. And you need to be realistic about the net return – that’s something many forget to consider when calculating their percentage return – and it’s rarely as great as people think.
Most of the people I speak to calculate their net rental income incorrectly, forgetting all the costs and taxes associated with maintaining a rental property.
Too much exposure to property can be a huge risk, it needs to be balanced with liquid assets which may be quickly turned to cash if, and when, you need it. You should plan to have enough liquid capital to be able to cover the costs of managing a vacant property for a considerable time to avoid risk.
Tax advantages
We spoke about the tax issues arising from property ownership, but what about the tax advantages?
If you are, for example, a UK national living in France, you might prefer to have a property in the UK, either as an investment or “pied-à-terre”. Property owned outside of France is outside the scope of Property Wealth Tax for the first five years of ownership. Also, UK property, due to the succession treaty between the UK and France, is completely outside the scope of French Inheritance Tax and mostly, French succession law. I say “mostly” as there are some (very contentious) rules in France forcing it to be considered in some cases.
And, if you’re considering owning a rental property in France, there are some very interesting tax deduction schemes for long term landlords.
Investment properties in France can present some interesting financial planning opportunities – however, it does require some very careful planning.
When it comes to managing your “patrimoine”- all assets, property and money – it is best to consider it as a whole.
The French routinely seek the counsel of an authorized, registered and qualified “conseil en gestion de patrimoine”, before making important financial decisions, concerning both money and property. And if you want to make the most of your investment opportunities, it’s something you should consider.
If you would like professional, qualified help and advice you can trust for reviewing your finances and investments, get in touch with Kentingtons at: kentingtons.com
