For many of us, embarking on a renovation project, whether in the UK or France, can be a daunting prospect. Some people will have more experience of this than others but taking on a project in a country with different rules and regulations in a foreign language should not be underestimated.
Your level of French could be a key deciding factor, as deciphering quotes, planning permission regulations and the endless paper trail can be challenging and laborious. It may be worth considering employing experts to save you money in the long run, or you may choose to do some of the work yourself and employ professionals to do the more specialist things like electrics and plumbing.
First things first
Whatever your approach there is a number of things to take into consideration. Firstly, it is probably worth creating your own project plan and deciding which parts you are going to tackle yourself and where you might need help from specialists.
Having identified the extent of your project, it is probably time to draw up your timeline and see how much time you have to manage your building works and builders. It might be you decide to employ a project manager at this stage, someone who knows the system and is on the ground.
Capital gains tax (impôt sur les plus values immobilières) is due on the sale of land and buildings. Tax is applied on completion of the sale of your property and is deducted from the sale proceeds before the cheque is handed over by the notaire at the signing of the acte de vente.
The capital gain varies depending on your tax residency – whether you are UK or French tax resident – and also depends on whether this is your primary or secondary home.
VAT (TVA) is another area where the process differs from the UK. TVA is normally 20% in France but the rate charged for home improvements, conversions and repair of residential property is due at a reduced rate. All routine repair, maintenance, renovation and improvements are eligible. This reduction is also available if you are increasing the size of the property, provided it doesn’t increase the net surface by more than 10%. There are exemptions as well so if you are building a terrace, balcony, tennis courts or swimming pools, to name a few examples, it is back to 20%.
It is worth checking with the local tax office before embarking on your home improvement in case you find your particular project is at the higher TVA rate. If you are making changes that aid energy conservation the rate is reduced further at 5.5%. These TVA rates only apply to buildings that are over two years old and are not applicable to new-builds. A word of warning: a project that is a complete ruin is likely to be considered a new-build!
If you have a substantial renovation project to undertake, it can sometimes be difficult to determine whether or not you are eligible for the reduced rate, so some careful calculation with the architect/builder may well be required to clarify the situation. Paying the reduced rate of TVA only applies if you are using a French artisan or a registered French company to carry out the work. If you decide to do the work yourself you will be buying the materials at the full TVA rate of 20%.
If you buy the materials and a local artisan carries out the work, their labour charge will be at the lower rate. When the work is completed by the artisan you will be given a certificate for signature. You need to hold on to this document for five years, as does the builder, as it may be requested by the tax authority. If they deem you to have broken the rules, you will be liable for the additional TVA, not the builder.
In addition to these TVA rules, insurance plays a key part in your project costs. It is vital that you have all of the right insurances in place before you embark on your building project.
There are statutory rules with regard to guarantees. For new-build and extensions there is a requirement for a 10-year structural warranty guarantee from the builder, and this is often exceeded with roofers providing 30-year cover. It is a good idea to ask the builder to provide you with this before you start the project, and you should also have a policy in place called tous risques chantier, to cover any accidents that might occur during the building process. Don’t be fobbed off with a note from the artisan’s broker; you need to see the valid certificate before allowing them to start any work on site.
For new-build projects built by French registered builders, a further policy called a dommages-ouvrages is required. This works rather like NHBC insurance in the UK and it is sometimes a loan or mortgage requirement. This covers repairs to the building for a period of 10 years after completion – it is a good idea to ask the builder to organise this in advance of starting work.
As the owner of the building it has to be in your name, signed by you and lodged with the town hall confirming that the building site is open. The insurers may wish to examine the building from time to time and will need all the names of any sub-contractors working on the project. The cost of this sort of cover is approximately 1.5% of the sum covered. If you do not have this 10-year cover you can face various consequences and there is a possibility that the property will reduce in value by up to 30%, as any purchasers will want to see proof of this insurance on purchasing the property. In addition you should also have public liability cover in place to cover any accidents that might take place on site.
Steve Gillham runs Alliance French Property and Liaison Construction