Cash payments to the vendor – should you do it?
by Sue Busby, France Legal (original version published in France magazine)
It is not uncommon for a purchaser of property in France to be asked by the vendor to pay part of the purchase price in cash ‘under the table’ (sous la table). The purchaser is told that everybody does it and if you go along with it then you will have lower notaire‘s fees to pay.
Whilst it is impossible to state with any accuracy how many purchases are made in this way, it is certainly a gross exaggeration to say that ‘everybody does it’. The notaire‘s fees are set by law. However, the stamp duty you pay is based on the purchase price and is currently 5.09% of the stated purchase price. So for example, if you are buying a house for £150,000 but only declare £100,000 in the acte de vente (final conveyance deed), then you will save 5.09% of £50,000 which is £2,545.
Why does the vendor want you to do this? What does he get out of it? Unless the property is his main residence, then he will be liable for capital gains tax. Capital gains tax is payable on the sale of a second residence at a rate of approximately 34.5% for EU residents. The basic liability is calculated by deducting the purchase price (as shown on the acte de vente) from the selling price. Certain allowances can be offset against this liability such as purchase costs and the cost of improvements to the property, providing proper VAT receipts can be produced. Also, the liability is reduced depending on how long the property has been owned (see article on French capital gains tax)
If our purchaser agrees to the ‘sous la table’ payment mentioned above and decides to sell his property a few years later, he will of course have a greater capital gains tax liability as the purchase price shown in the acte de vente will be used in the calculation. If for example our purchaser pays £150,000 for his property but only declares £100,000 and has to sell the property 3 years later because his wife is ill and can no longer travel to France, then even if the property has not increased in value at all, he will have to pay capital gains on the £50,000 not previously mentioned. The capital gains tax being 34.5%, this liability would amount to £17,250. This makes the saving of £2,545 on stamp duty at the time of purchase look much less attractive.
If that doesn’t put you off then the other point to bear in mind is that invariably your acte de vente, which shows the purchase price, will contain a declaration that the price shown is the true price and that you have been informed by the notaire of the penalties which may be incurred if the price shown is untrue. Are these penalties anything to worry about? Under article 1837 of the French tax code, which also makes reference to the French penal code, it provides that those who fraudulently undervalue the purchase price will be jailed for 3 years and fined €45,000. Furthermore, you may also be deprived of your civil rights for 5 years or more. This leaves no doubt about the seriousness of the offence.
Innocent foreign purchasers may be put under a great deal of pressure by agents and vendors and sometimes even the notaire to make side payments ‘sous la table’. I leave you to decide for yourself whether it is worth the risk.
© France Legal 2016