Service France

Conversation with David Anderson about the taxation position of a UK expatriate in the Middle East buying a French property.

Please note that taxation is a complex subject and you should not take or refrain from taking any step without full independent advice on the particular facts of your case. The content of this article is of a general nature and no liability is accepted in connection with it.

Q I have been working in the Middle East and am planning to buy a French property to retire there. I am a UK national and prior to working aboard always lived the UK.

A You should be aware of the French rule which deems certain non French residents who own a home in France to be in receipt of income.

Q How is this tax calculated?

A You are deemed to be in receipt of income based on three times the rental value of the property. The rental figure is assessed using other local rented property for valuation purposes.

Q What are the ways around this?

A Firstly the rule does not apply if you have French income which is more than three times the rental value. This will rarely apply in practice. Secondly it does not apply if France has a double tax treaty with the country you are resident in which overrides this part of French domestic tax law. This is the case for the UAE for example.

Q What can I do if the country I am in does not have a suitable (or any) tax treaty with France?

A It starts getting more complicated here. The relevant French law says that the three times rule does not apply if you are a French national who can show that in the country where you are tax resident your personal tax on all your income is as least two thirds of what you would have paid in France on the same taxing basis.

Q How does this help me? I am not a French national

A Most French double tax treaties have a non discrimination clause which states France will not discriminate against a national of the other state. This is the case in the current UK France tax treaty. This means that the French Inland Revenue must treat a UK national in the same way a French national would be treated. In other words for French national you can also read UK national.

Q How do I show my income is taxed at the required 2/3 rate?

A This exercise is fairly complex and you need expert advice. Remember it is not your gross income which is relevant but a comparison of the net tax paid in France and the other country calculated using the French tax rules.

Q This all sounds too complicated. I do not want to divulge my offshore income to the French tax authorities. Any other suggestions?

A Yes. If you are only going to be in the Middle East for a short time then simply work out the tax payable in France and pay it! The amount may not be a great deal depending on the rental value of the property and your personal situation.

Q What about just taking a flyer and hoping the French tax authorities do not pick it up?

A Not a good idea. The notary who deals with your conveyancing is under a duty to notify the French tax authorities as he is also a tax collector. You will almost certainly be caught and the property will provide security for the French tax and fines.

Q What about owning it through a nominee or trustee in, say, the UK?

A The French rules state that you are still caught if you own it either directly or through a third party. Simple nominee agreements will definitely not work. More sophisticated arrangements may get around the problem though the costs and inherent risks in venturing into this territory mean it is only for the brave.