The hidden costs
UK sellers of French property are normally told by the notaire at a late stage in the transaction that they need to appoint a French fiscal agent. In almost every case the notaire will appoint the fiscal agent. In some cases UK sellers are unaware that a fiscal agent has been appointed until they receive a completion statement and see their fees have been deducted from the sale price.
The job of the fiscal agent is to calculate the amount of French capital gains tax payable on the disposal of any property over €150,000. Fiscal agents are tax accountants working as private companies for the French Inland Revenue but with their fees paid for by the non-French sellers of property. Unlike a solicitor in the UK (who is not a state appointed tax collector), France requires the notaire (who is a state appointed tax collector) to hold back the capital gains tax from the net sale proceeds.
Notaires use a fiscal agent to cover their position in case there is a tax shortfall. The notaire will not complete the transaction involving a sale by a non French resident without the necessary clearance from the tax agent. French residents are not subject to this regime.
There are relatively few fiscal agents, who fulfil two roles. Firstly they calculate the amount of capital gains tax due and secondly they guarantee to the French government that the right amount of tax has been deducted. As such, the fiscal agents are very cautious and will always err in favour of the French taxman.
In practice, for most UK buyers their work consists in firstly ascertaining the tax payers are UK resident and so are subject to the lower rate of CGT (16%) than the standard rate (33 1/3%), and secondly, working out the money which can be deducted in calculating the capital gains tax.
This usually takes the form of analysing invoices to make sure that they are made out to the seller and have been paid, and also checking that the invoices relate to works which are deductible, generally works of a capital nature rather than invoices which relate to repairs which are not deductible.
The tax agent’s fees are calculated according to a percentage of the sale price. In practice, they will always start at a fee of 0.5% of the sale price and will then typically add on a further 0.4%, bringing their fee to typically 0.9% plus French VAT at 20%.
Taking a typical example and ignoring all deductible costs and relevant tax reliefs of say a British couple who purchase a property for €300,000 and sell it for €500,000, making a gross gain of €200,000, the fee payable to the tax agent will be (€500,000 x 0.9%) + French VAT = €4,500 + VAT = €5,382. The capital gains tax is worked out at 16% on €200,000 which equals €32,000, which means that the net tax suffered by the British couple is actually €32,000 plus €5,382 = €37,382, i.e. effectively a capital gains tax rate of 19% or 3% more than a French person pays.
The UK-France double tax treaty prohibits any form of tax discrimination against the nationals of the other country. However, what we have here is a UK national effectively paying 3% more capital gains tax in France than a French national. The position becomes much worse if the property which is sold is of a higher value but the gain is lower, because the French tax agent’s fee is always worked out on the sale price and not on the gain.
So, absurdly, in the above example if the purchase price was €1.8M and the sale price €2M the tax agents fees would be say 0.9% plus VAT of €2M = €21,528. This means the UK sellers real rate of French CGT is 27% instead of the 16% the French resident pays. So for the same calculation and the same risk the tax agent’s fees are four times more!
This is clearly disproportionate and a nonsense and should be stopped. Whilst it may be reasonable for the accountancy fees for calculating the tax to be paid and perhaps for the French government to insist on the money being deducted and agreed before the property is completed, the ‘flat fee’ of 0.9% which must always be levied is almost certainly illegal. It also is almost certainly illegal under the EU treaty, as amounting to a hindrance on the free movement of capital.
The fees that the tax agent charges are not linked to the complexity of the matter or the risks involved in guaranteeing the UK seller has paid the right tax. The ‘premium’ built into the fee for the guarantee element again looks far too high. In the above example how can a ‘premium’ of say €18.000 be required to guarantee a French CGT risk of €200.000 @ 16% = €32,000. There would be a queue of UK underwriters for business this lucrative.
It should be borne in mind that if you are a UK taxpayer, then you will have a residual liability in the UK to pay UK tax, though this is subject to quite a number of exemptions and reliefs.
If you are in the position of having completed and already paid the tax agent’s fees then you should contact the notary who acted for you. You should point out that you have been discriminated against under the UK-France double tax treaty and ask him to deal with a reclaim of the tax agents fees he has deducted and paid over on your behalf as they have an obligation to ensure that the correct French taxes have been paid.
This is their key function as they are public officers of the French state appointed by the French Minister for Justice and as such they are exercising a public power. The other option is to contact the UK HMRC to request the matter be raised and a refund obtained for you.
Important Note. The information given here is for information only and is of a general nature and is not exhaustive or comprehensive. Taxation is a technical and complex area of law and you should not act or refrain from acting without comprehensive specialist advice on the facts of your case.
Solicitor and Chartered Tax Adviser
Sykes Anderson LLP