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 probably 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 works out at about 4.8% 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 4.8% of £50,000 which is £2,400.

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 33.33%. 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 by 5% a year for every year of ownership after the second which means that after 22 years, there will be no liability at all.

If a vendor has inherited a property which he does not want to keep, he may be particularly keen to receive a cash payment as of course he is likely to be selling the property fairly quickly and has not paid anything for it and therefore has to pay capital gains tax on the whole value of the property.

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. This liability would amount to more than £15,000. This makes the saving of £2,400 on stamp duty at the time of purchase look much less attactive.

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?

In fact, they are contained in article 1837 of the Code General des Impôts, which also makes reference to the Penal code. It provides that those who fraudulently undervalue the purchase price will be jailed for 3 years and fined 45,000 euros. 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.

by Susan Busby (published in Living France)

Susan Busby MA, France Legal, Tel/Fax: 01473 327759, e-mail: ssb@francelegal.co.uk

© France Legal 2002