May, 2004

The high cost of French home owning

It seems like an obvious thing to do. Buy a house in France and rent it out to cover the costs, use it for your holidays and then end up with an asset once the debts are paid. But how realistic is it really? Tom, a friend of mine in our nearest village owns a three-bedroom house, which he bought for £100,000 three years ago. He rents it out for July and August, as well as some weekends off season and sometimes for half term. His average rental income a year is about £10,000. During the peak season he gets £1,000 a week. Out of this has to come his local taxes, both taxe foncière (land tax) and taxe d’habitation (residential tax). The total combined is £1500 a year. The amount you pay is calculated according to how much land and property you own but also differs between local authorities. On top of this, Tom has to pay income tax on the rent. The standard rate for non-residents on their rental income is 25% on the profits, which the revenue calculates as 28% of gross income. In other words, they give you 72% relief for expenses such as maintenance and repairs. The gross income should also be declared in the UK and you will get a credit for the tax paid in France. After taxes Tom’s profit is around £6,500.

“That sounds great,” says Pat Bellis, of Riviera Search International. “But he hasn’t even started to pay for all the maintenance costs. These include a gardener, a cleaner, a pool man, the cost of water, fuel, electricity and so forth.”

As I mentioned last month, the cost of employing people in France is huge. As an employer, you can end up paying 45% on top of their salary for social charges. And employing people for cash is not an option, according to Dawn Alderson of Russell-Cooke Solicitors. “It is totally illegal,” she says. “And really frowned upon by the authorities. There just isn’t the same attitude towards it in France, it’s a complete no-no which could see you end up in court.”

What are the options for casual labour, if cash is out of the question? The first and easiest is to use a company or a sole trader who is registered in France. He will invoice you from his business complete with a siret number which proves the company or entity is registered on the French system. A second option is to talk to your bank about setting up a chèque-emploi-service whereby you can legally pay a casual worker through your bank account. This is basically a scheme within the French system to allow people to employ cleaners and gardeners cheaply and easily. The final option is an employment contract whereby you, the employer, would have to issue pay-slips and also be responsible for the employees’ social security contributions. The latter would also mean you need an accountant to deal with the pay-slips and so forth.

Tom uses self-employed gardeners and cleaning staff. The gardeners earn £10 an hour and the cleaners get £6. In 2003 he spent £1,600 on both. His total profit is now £4,900. And he has still to pay for fuel (around £400 a year), electricity (another £600 a year), pool maintenance (on average £500 a year) and water which is £700 a year. All these costs obviously vary according to the region you are in the size of your property. Another thing to factor in is the changing rentals market. “Gone are the days when people just went away in the summer for three weeks,” says Marcelle Spelling, Director and Co-Founder of holidayfrance.com. “Now they come for the weekend, for short breaks and so forth. But as a landlord you have to remember that the changeover costs the same whether they have been there for two weeks or two days.”

In addition to the costs of maintaining the property, Tom also pays to advertise it on the Internet with www.rentalsfrance.com. The amount varies, if he doesn’t get any bookings, he pays nothing. If he does he pays 10% of the rental income up to a ceiling of £195. Another 15% of his rental income goes to a local lady who sees the guests in and out and is on hand to deal with any problems. His profit is now down to £1,020. And that’s before he’s paid the mortgage. But as Paul Beaufils of www.buyahouseinfrance.com sums up: “People aren’t doing it for the money, they’re doing it be able to live their dream.”

Pat Bellis 00336 11798235 rvsi@wanadoo.fr
Paul Beaufils 00334 67325949 www.buyahouseinfrance.com
www.rentalsfrance.com
Marcelle Spelling www.holidayfrance.com
Dawn Alderson, solicitor and avocat, partner with Russell Cooke solicitors
aldersond@russell-cooke.co.uk 0208 789 9111

Unscrupulous compatriots

A reader from Reigate writes to me with a warning about estate agents in France. He bought his house in Brittany two years ago. When he took possession he noticed that the wood-burning stove the agent had said was included in the purchase price was gone. He contacted the agent, Vivre en France (VEF). “We didn’t say that,” said the local representative. “Oh yes you did,” said the purchaser. “And what’s more I’ve got it on video.” VEF promptly installed another wood burner. “I just want to make readers aware that even if they’re dealing with English agents, they are not always competent,” he writes. You should also beware of compatriot sellers. The same buyer arrived at his property a few months after he bought it to find nine windtowers behind it. A plan the previous owner, a British person, must have been aware of.

Swimming pool barriers

Typically this whole issue has been so complicated by the French administration, no one seems to know what is going on any more. I can confirm that even if you are letting out your house, you are not forced to have a fence. However, you will have to fit an AFNOR approved equivalent such as an alarm or a cover. It is worth talking to your insurance company as well to confirm which safety devices it will accept under the terms of your insurance contract. For more information look at www.saferpools.co.uk.