Reader question: We have been offered money to buy a second home, from a family member in the UK. It would be a loan we would need to pay back at some point but the terms are generous. How would it impact the buying process, inheritance, taxes?
If a family member loans you the money and they are UK-resident, from a French buying point of view, you are a cash buyer.
The lender would be wise to ensure a formal loan agreement is drawn up, in case you are unable to make payments. In case either of you die, the debt can be evidenced and paid out of the debtor’s estate.
If the lender dies, the heirs can take over the debt that becomes due to them.
To record the loan in France, you would use a reconnaissance de dette (like a promissory note or a basic loan agreement).
This can either be done between you privately, or a notaire can prepare it for you and register this in France, and even secure it against the property, giving the lender additional protection. This would incur additional fees, though.
Registration is not obligatory, but is helpful as it proves the existence of the debt and allows inheritance rights to connect to it.
You can arrange registration yourself – the fee is €125. If a notaire drafts the document, they will deal with the registration.
From an inheritance tax point of view, the debt, if registered, would reduce your net estate. It would be paid out of the estate and is not subject to inheritance tax.
Note that if you borrow more than €5,000 in a year, you need to declare it at the same time as making your income tax return, on form 2062. Where the person lending is a French (rather than UK) resident, then for any amount over €1,500 they should record the loan using a reconnaissance de dette.
Author: John Kitching, French Law Consultancy. French Law Consultancy provides French legal advice