Dreaming of a second home in France?

As the summer holidays draw to a close, you may find yourself dreaming of buying a second home in France (or perhaps even moving there permanently).

You may know that the standard VAT rate in France is 20%. But did you also know that subject to certain conditions, you may qualify for a reduced rate of 10% on work of improvement, conversion and repair of a residential property?

This rate is further reduced to 5.5% if the work you carry out leads to energy conservation and is eligible for the energy saving tax credit.

Some basic rules apply:

• The property can be your main residence or your second home as long as it is at least two years old
• All routine repair and maintenance work as well as renovation and improvement work is eligible for the reduced rate;
• The same is true for an increase in size as long as the net surface of the property is not increased by more than 10%;
• The reduced rate is only available on materials bought from and/or work carried out by a professional registered in France;
• You will have to sign a certificate for the builder and you must retain a copy of it for five years so that you can produce it should you receive a request from the French tax authorities.

And be warned, some pitfalls exist:

• If you buy a ruin and renovation/rebuilding work is very significant, the French tax authorities may reclassify your project as a new build. In this case the standard rate of VAT will apply;
• Swimming pools, tennis courts, garages and other large extensions are not eligible for the reduced rate of VAT.

Author: Stéphane Sintes, HLB France, COGEP