Business Law: Matthew Cameron highlights some pitfalls in owning property overseas

Matthew Cameron of Ashton KCJ

Matthew Cameron of Ashton KCJ - Credit: Archant

We often receive enquiries from owners of private companies who tell us that they are interested in buying a property in France, with cash from their company.

The reasoning may be quite understandable: not taking profits as salary or dividends, they will hope to reduce their personal tax liability. The company has spare cash, they do not; a simple answer to how to finance the purchase of a second home.

Inevitably, though, the proposition is not that simple, and so before signing a contract, it is worth having a brief look at some of the potential consequence of structuring the purchase in this way.

Perhaps the most obvious point, from an English perspective, is the UK tax treatment that may arise from the company owner taking a benefit from a company asset: staying in the property. Any use by the owner may be taxable.

It will also be expected that if the property is to be rented out, then the income would be due to the company. That would then give rise to Corporation Tax in the UK. However the fact that the property is situated in France would also give rise to a potential French corporation tax issue. Double taxation relief should be available.

Similarly, on disposal of the property, there is the potential for Capital Gains Tax, and again this could arise in both jurisdictions. However, property held in France through an English company would be treated as a wasting asset, so the taxable gain will grow as time passes, even if the property does not increase in value.

There is the spectre of an annual tax being applied on French properties owned through foreign companies, at the rate of 3% per year of the value of that property.

Most Read

It is relatively easy to ensure compliance with provision of information requirements that mean this tax can be avoided, but it is another administrative burden to bear in mind. It is, however, a tax that is often imposed, together with late payment penalties and interest, on companies that have not complied.

While the initial proposition is understandable, complications can arise. As such, legal and accountancy advice, from solicitors and accountants with knowledge of English and French legal and fiscal systems, should be obtained before proceeding.

The reality is that as soon as one contemplates a transaction overseas, a second set of legal and tax concerns has to be considered.

: : Matthew Cameron is head of French property services at Ashton KCJ.