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Cecile Schlub, Maitland

Overcoming complexity and realising opportunity in luxury French property

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Cécile Schlub (pictured), Senior Associate with Maitland in Monaco, looks at the status of investing in high-end property in France. While such an investment will rarely lose value, the regulatory and tax regimes are increasing in complexity. Expert advice is highly recommended.

Against the backdrop of the COVID-19 pandemic, luxury French property remains an attractive investment choice for many high net-worth individuals (HNWIs).
 
While it is plausible to assume a global economic crisis would plummet demand for expensive assets such as real estate, we have seen the market value of high-end property in France rise by up to an impressive five per cent since the beginning of the pandemic in some of the most exclusive areas of the French Riviera. Although the crisis itself has not directly boosted international demand, it is clear high-end French properties will rarely lose value and continue to be a safe investment option.
 
However, numerous investors in the luxury French property market are grappling with the outcomes of an increasingly complex regulatory landscape and unforgiving local tax administration with respect to high-value assets held by non-residents. It requires a lot of time and heavy lifting for an investor to obtain suitable tax and structuring advice, secure the mortgage holdings, negotiate with suppliers, and liaise with accountants throughout the investment process.
 
Here are some of the hurdles HNWIs looking to invest in the French real estate game can anticipate, and more importantly, how can they overcome them.
 
Relieving the investment process burden

Investing in high-end French property can be a complicated, drawn-out procedure, comprised of multiple stages. These include considering adequate holding structures, tax, securing finance, negotiating terms, implementing transactions and filings.
 
What is more, holding a high value French property is also likely to involve ongoing administration including liaising with accountants, notaries, property valuation experts, employees, French tax administration, and completing and submitting statutory filings.
 
Clearly, purchasing and holding French property entails, and will continue to require, plenty of time and attention – at levels that HNWIs are understandably neither willing nor able to give. Instead, they must look for ways to simplify this process or, better yet, have someone who is fully capable of managing it entirely on their behalf. It is vital that HNW investors have the right expertise and people by their side to enable them to focus on their day-to-day priorities and take over a significant manual, time-intensive burden.
 
Navigating the tax landscape

Adding to existing pressures, the French tax authorities have become increasingly attentive to real estate held by non-residents and applicable rules change regularly.
 
Currently, all real estate assets (including shares held in real estate holding companies) are subject to annual French wealth tax if the net market value of the real estate assets is EUR1.3m or more.
 
The rules on the debt which can be deducted to determine the net market value of property for French wealth tax purposes have changed since 2018 and many non-residents may need to revisit their wealth tax position as a result.
 
Investors in French real estate may also need to consider estate planning issues in respect of their French assets such as the rules on forced heirship and be aware of the potentially very high rates of succession duties which may apply (up to 60 per cent in some cases).
 
In addition, specific laws on the holding of French property through foreign structures or trusts also need to be considered in detail.

To mitigate the impacts of the changing French tax rules for real-estate ownership, it is crucial that investors are first aware of such pitfalls.
 
Having a local understanding

An ongoing issue for HNWIs investing in French property is understanding French laws and practices, including annual filings, accounting obligations, employment laws and more. HNW investors may not be able to manage the administrative and regulatory burden themselves speaking in the local language – an obvious roadblock, yet often overlooked.
 
Clearly, purchasing and holding French property entails, and will continue to require, plenty of time and attention – at levels that HNWIs are understandably neither willing nor able to give. Instead, they must look for ways to simplify this process or, better yet, have someone who is fully capable of managing it entirely on their behalf. It is vital that HNW investors have the right expertise and people by their side to enable them to focus on their day-to-day priorities and take over a significant manual, time-intensive burden.
 
Seizing the opportunity

Demand for high-end properties in France is set to remain unfazed by the pandemic, therefore opportunity remains. As international government vaccine rollout strategies inspire further investor optimism, we can expect appetite for high-end French property to steadily grow on its upwards trajectory.
 
Nonetheless, the process remains complicated. In order to capitalise on this increasingly popular investment opportunity, HNWIs must consider having a trusted adviser that understands their needs and mitigates the inevitable challenges that lie ahead.
 

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