Luciole

I hope this isn't being too clever for my first post, but I have an idea to try and minimise the risk of being taxed on a second home.
I intend to move to France early in 2015, but am a little reluctant to cut all ties in the UK, so I had an idea of sharing the equity in properties in both countries. My idea is to buy a french property with a friend, but I would own 60-70% of the equity in the french property and they would own 60-70% of the equity in the UK property. We would each own the remaining equity in each others property. The idea of this is that each of us would have a clear indication of our main residency status, but would still have capital exposure and a foothold in both countries. I am happy to make my house in France my prime residence and would make sure that the deeds for each property were correctly completed to show the percentage ownership.
I would be grateful for any input as to the rights and wrongs of this as it is only an idea at the moment as a way of sharing risk and also benefitting from possible property value increases.

cyrian

Not really quite sure what you are trying to do - but your residency doesn't enter into it.
If you are talking about CGT on the sale of the property then whatever your residency, the notaire will deduct the correct amount of tax for the french government and give you the rest. That is his job.
CGT is charged in the country where the property is situated and if you are resident in another country then you declare the CG plus any tax paid.
You may or may not have further tax to pay.
If you sell a property in France then you need to declare the "gain" to the UK tax man. Anything else is tax evasion and you can be fined just like a millionaire with a Swiss bank account.
The advantage in france is that after 30 years of ownership the CGT disappears.
The advantage in the UK is that each co-owner has (2013) £10,900
which is free of CGT plus indexation so that you do not pay for inflation. The current rates are 18% or 28% depending on your highest tax band.

In addition, you don't seem to understand the rules about tax residency.
The two countries have different rules regarding residency.
If you intend to live in France or work in France then you are tax resident.
If you live in France for more than 183 days per year then the french will assume that you are tax resident.
It isn't simply having a bigger house in the UK.
This is a very complex area and if you try to be smart then you could end up being really screwed.
Take my advice - keep it simple

Peabrain

If I were you I'd have a chat with a notaire about the advantages and pitfalls of buying "with a friend" and how best to keep the friendship going during your joint ownership of your property (s). The notaire will have seen it all before and may well advise against.
Good post from cyrian that is well worth taking seriously.
pb

EuroTrash

Definitely take PB's advice and chat with a notaire first. I don't see anything illegal in it, people can buy properties jointly if they want, but not sure what you are expecting to gain? The system is geared up to giving the most favourable treatment to 100% owner occupiers so why go to so much trouble to avoid being one? It seems plausible to me that if a property in France is jointly owned by a resident and a non-resident, when it is sold the notaire will deal with each of the owners separately and apply the rules to each share as appropriate to that person's status, so the fact that one owner is resident, will not prevent the non-resident being liable for CGT on their share of the profit. If there is any. Not sure how CGT works in the UK but presumably, again, each person has to declare their share.

And like Cyrian, I'm not sure what advantage there is in having a 'foothold' in a country where you are not resident. Owning property as a non-resident does not of itself give you any rights, that I am aware of - apart from the right to pay taxes. I take it you are not intending to put yourself on the electoral role at the UK house as that would stop your friend getting the 25% single person's allowance.

Finally, if one of you wants out of the arrangement before the other it could turn a beautiful friendship very sour.

Would it not be simpler all round for you to buy a house in France if that is where you will be living, your friend to buy a house in the UK if that is where they will be living, and agree mi casa tu casa?

bigglesworth

I waited for the more knowledgeable before adding my two pennyworth.

You still have a currency risk if one of you owns 70 percent of a sterling based property, and the other 70 percent of a Euro denominated one. Over time the divergence can prove substantial.

Also, although some believe UK property is still overvalued, many think that on traditional measures (see the Economist ) France is the most over valued market in Europe. (Although it seems to me that one should use the same measures to evaluate each for a truer picture).

IMO it would put the bonds of the strongest friendship under strain

EuroTrash

There is also of course the succession issue to think about, esp. if this is a retirement project.

If your friend owns 40% of the property in France, and predeceases you, then if you inherit your friend's 40% of the property (which may or may not be possible by 2015 - under current law, it would be inherited your friend's children if they have any, your friend could not disinherit children in favour of a friend) - then as a non-relative you would have to pay 60% succession tax on the value of the inheritance.

In reverse, of course, your friend might end up paying less succession tax.

Luciole

Thank you all for your input and there are certainly quite a few angles to consider. My main thought when browsing these boards is that most people only consider two options when moving away. a) selling their property in the UK and moving. b) Keeping their UK property and buying a second home.
I am still convinced that it is worth keeping a foothold in the UK on the basis that property values here (south east) are set to increase faster than elsewhere in Europe. Selling up and then trying to get back in again at a competitive level does not seem to be a very good strategy.
I have no dependents, so I am free to leave any assets to whom I choose. I do appreciate the 'succession angle' though as the other party does have one child. As for the question of the Euro, I can't even begin to guess if it will be in existence in 10 years time, so trying to factor in currency fluctuations is beyond me.
I think you may all be correct though in saying that this could all backfire in the event of a falling out, though as a concept it still has attractions.
One other question I have is about residency, which seems a very difficult state to prove, as there are now no border controls (document stamps) to show when you come and go. It is my intention to live in France (Corbieres region) but it may be necessary to travel back to the UK initially quite alot. Do the french authorities really pin you down to prove +/- 183 days?
Thank you again for all of your concise replies. Good to have the assistance of straight talkers.

EuroTrash

Residency, as regards your house being your maison principale or your maison secondaire, is usually pretty black and white as far as notaires are concerned. It hinges on you being able to show an avis d'imposition, which you only get when you have submitted your annual tax declaration from that address. If you are legally resident, you have to submit an annual tax return and pay your taxes. If you don't declare yourself to the fisc, as you say it is unlikely that the fisc will ever notice you. This unfortunately is where people who actually do live in France but never declare themselves, come unstuck - if you have never filled in your tax forms you can't suddenly pop up and claim to have been resident for x years, just because now it suits you to be resident.

On the other hand if you keep too many ties with the UK then HMRC will not consider that you have left, in which case you might in fact be considered dual resident and it would be up to the two countries to look in detail at where you spend your time and where your economic interests and family ties are, and decide between them where you are tax resident and where you miust declare your worldwide income.

cyrian

Residency is a lot more complex than just 183 days.
If you arrive with the intention to set up your permanent home in France then you are tax resident from day 1.
It is your responsibility to complete a french tax return and failing to do so results in large fines.
You are not dealing with UK law which is innocent until proved guilty.
You are dealing with french Napoleonic code which means that if you are charged with breaking the law then you have to prove that you are innocent.
What you seem to suggesting is similar to not declaring some or all of your income in the UK.
As in the UK, there is no CGT on main residences.
Why doesn't your friend have a house in France and you have a house in the UK. As long as you move back to the house in the UK before you sell it then no CGT. (Don't know what the qualifying period is). Think MPs flipping main homes etc.
Recently, a Brit lived in France Mon - Fri but his wife and children lived in France. He was only in France at weekends and holidays but was found to be tax resident in France by the courts and fined for non-completion of tax returns etc.
I agree with ET

EuroTrash

There is a third option that you don't mention but that is very common indeed and makes a lot of sense - moving to France but keeping their UK property and renting it out as a source of income.

cyrian

Yes and accepting the CGT including the annual allowance and inflation index plus an 18% rate on any remainder for basic rate taxpayers.

Luciole

Thanks all.
With regard to your last post ET, the only way of then minimising the tax liability would be to move back to the UK and resume occupancy of the house. If for whatever reason you decided to remain in France and sell the UK house, you would incur CGT on what is effectively a second home?

EuroTrash

Yes - but I guess most people who do this, do it as an ongoing thing and don't envisage selling. Obviously the clearer your longterm plans are, the better placed you are to make all the right decisions from the off. It's trying to hedge your bets that makes things complicated.

I appreciate you are anxious to give as little to the various taxmen as possible, but don't forget that they are equally anxious to claim every cent they can. The rules are set up to make it difficult to avoid paying taxes and I think you will need expert advice if you are going to pit your wits against both the fisc and HMRC. There will always be a papertrail because there are forms to fill in each year - which can be complicated enough even when your affairs are simple - so you have to make sure you understand all the implications and consequences of what you are doing, have a consistent strategy and don't do something one year that might backfire in five years' time. Once you've done something and declared it, you can't backtrack.

dmu

It's not clear whether your "friend" is in fact a "partner" or simply a platonic friend. Not that this makes much difference from the legal French point of view - if you're not legally bound, you're considered as unrelated and the survivor in the event of death would have to pay the 60% Inheritance Tax on what they have been willed by the deceased. One problem might arise re your friend's child and how your friend's succession will be affected in your respect if he/she dies first. This, not to mention all the other complications, must be discussed with a French Notaire, not simply a UK solicitor.
Good luck, you'll have realised by now that French Property and Inheritance Laws are a complicated maze, nay minefield!

Luciole

My friend is just that. Unrelated.
Clearly the french tax authorities haven't watched our 'Tax doesn't have to be taxing' advert on TV.!