MGI Conference Acquisition of French Holiday Property, London

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ACQUISITION OF FRENCH HOLIDAY PROPERTYby UK
Residents or UK EntitiesJune 10, 2004Sofitel
St. James London

• Line-Alexa Glotin
• Avocats à la Cour
• UGGC Associés
• 47 rue de Monceau
• 75008 Paris

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Key issues before deciding to purchase a French
holiday property

• The tax implications relating to ownership of
  real estate in France
• Tax residence exposure
• French civil law attraction
• What is the tax burden of a transfer of ownership
  sale, gift or inheritance
• The following presupposes that the UK-France
  Income and Inheritance treaties apply to the UK
  investor.

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Legal barriers to be taken into account

• Forced heirship rules
• Predominance of real estate assets in real estate
  holding companies
• Legal definition of substantial indirect
  interests

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Real estate holding companies / Inheritance,
gift wealth tax

• Legal definition
• Value of French-situs real estate
• __________________________ gt50
• Worldwide assets(1)
• (1) Except for those assigned to the companys
  business (except leases)

• Position of the authorities
• Value of French-situs real estate
• _______________________________________________
  gt50
• French assets of the company(1)

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Application of the French tax authorities theory
Taxe basis

• Example UK company owns assets worth 20 M on 1
  January 2004, namely
• French-situs real estate 8,000,000
• UK-situs real estate 3,000,000
• French assets used by the 3,000,000
• company for its own business
• Other French assets 1,000,000
• Other non French assets 5,000,000
• Total 20,000,000
• This entity is a Real Estate Holding Company
  ( REHC ) because its French immovable assets
  (other than those used for its own business)
  represent 8/12ths, i.e. 66.66 of its French
  assets.
• Consequence The shares owned by the UK
  shareholders will be liable to inheritance, gift
  and wealth tax up to 40 of their value (8/20ths).

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Transfer TaxLaw / Tax authorities
Value of French-situs real estate and Similar
rights __________________________________________
_________________
gt50 Total worldwide assets
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3 Annual Tax

• Fair market value of French-situs real estate
  and similar rights, owned directly or through one
  
• or more French or foreign entities
• _____________________________________________
  gt50
• Fair market value of all French assets

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3 Annual Tax

• Example UK Company A holds
• A French-situs real estate, worth 5 M (fair
  market value)
• 50 of the shares of UK Company B, which holds
  French-situs real estate worth 4M (fair market
  value)
• 10,000 shares of a French Company C (listed)
  worth 10,000,000 on 1 January 2004.
• In order to determine whether Company A is a
  REHC, it is necessary to compare
• - the value of the French-situs real estate (5
  M) plus 50 of the value of French-situs real
  estate owned by Company B (2 M), with
• - the value of the said assets (7 M) increased
  by the value of the shares of C (10 M).
• The UK Company A is not a REHC since its
  French-situs real estate represents only 41 of
  its total French assets.

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Alternatives to be considered

• Direct acquisition
• Acquisition through a French Société civile
  immobilière
• Acquisition through a Luxembourg entity