Reader TTS

There are all kinds of investing and property is often complementary to a portfolio. The issue with property is that it is not right for everyone, myself included. The main issue is

liquidity. Property is generally long-term and is slow to sell. Stock market corrections generally happen relatively frequently, but it is good that a swing in the markets can move back to

pre-correction levels in less than a month, or quicker. Property cycles tend to happen comparatively slowly. As with any kind of investing, the trick is not to be forced to sell at a bad

moment. Timing is everything. Back to my client: I knew that they had some money in the markets, but they also had probably 15 years of their required income in capital protected assets

(what the client wanted, but a little excessive in my view, given their relatively young age). Liquidity was not an issue and any more in the markets would have pushed them too far into

volatile investments for someone of their risk profile. They were happy with a minimum of 20 years to hold the property and I was happy that the purchase would still leave them at least five

years of forward income in cash. Property was suitable for this person. Not right for me (though I did well on property in the past), but I run a business and liquidity is vital. Many of my

clients are well into retirement and want to enjoy their money, not get stuck in a property rut. If you want to see what a property rut looks like, just look at the French market over the

last 10 years, which, apart from Paris and coastal properties, really has not moved. If you want to rent, it is tough to guarantee a property will stay rented and, worse, that tenants will

always pay. We meet many people who are negative about both property and stock markets. The issue is not really a problem with either of these, merely that they got burned by poor timing and

not understanding the ‘fit’ with their situation. Having decided that you have sufficient liquidity to ride out property market plunges and want to put some money into bricks and mortar

(having taken suitable professional advice, of course) what are the questions to ask? SHOULD YOU USE A COMPANY? The answer is rarely. As far as using a foreign company is concerned, in 25

years, I have never seen a French residence bought this way end in any other way than catastrophe. I have never and would never recommend it. My view is that “planning on certainty as far as

possible” is the sensible approach, so buying with a foreign company is madness. I will happily argue with any lawyer who says otherwise. There is a type of French property holding company

called a Société Civile Immobilière or SCI and these are civil transparent, non-trading entities and are a perfectly legitimate way to hold French property. Non-trading does not mean that

you cannot rent a property, but beware of looking like a business if this is something you are seeking to avoid. SCIs used to have all kinds of tax breaks but they have been whittled away

over the years. For me, the main benefit is when families or non-relatives buy together, as changing ownership of shares is cheaper and simpler than directly held property. I still hear of

the fiscal benefits of SCIs – now long dead and buried – as if they are still going strong. Buying in an SCI creates reporting requirements – such as annual accounts and an annual general

meeting – and thus costs, which should be very low, but often are not. Please consider the objectives when you are advised to set up such a company for your property purchase. DO YOU WISH TO

RENT IT OUT? If you are investing in property, the chances are that you are wanting to rent the property out. The easiest solution for most is to be assessed under the regime of Micro BIC.

The turnover limit to access this regime is usually €32,900, with a 50% allowance on turnover, though it is possible to earn up to €82,200, with a 71% allowance on turnover, if the property

complies with certain rules. There are certainly pros and cons to this. The great advantage is the total absence of paperwork. You do not even need an accountant, since you do not need to

consider profit; thus, no receipts to keep, expenses to monitor or complicated ledgers to run. No continuous bills to pay, professional insurances to have in place, training costs etc. The

point is that this is considered as managing your own assets and not a profession per say. All you need to report is your gross revenue once a year, which is done on your personal income tax

declaration. There is a downside, of course, which is that you are being assessed only on turnover and not profit. This means that if your costs are high you can still make a loss and yet

have a significant figure assessable to tax. The alternative is to use the ‘réel’ regime, which involves the normal administration involved in running a business and we generally discourage

its use, mostly because most people we speak to have come to France to enjoy life, not get taken over by paperwork. People often ask about renting out using Airbnb and the answer is that it

does not change the tax position: it is still income from a furnished property, so the rules remain the same. There are so many other points to consider when investing and renting property,

but hopefully this is a useful start.