Being an entrepreneur, you like to work hard and make long days. With this, you have built a great company. However, there will come a time when you want to slow down to allow the younger generation to expand the company further. That’s a logical process: semi-retirement life lures you with more time for yourself and your loved ones. Of course, you will keep a finger in the pie.
But maybe you suddenly get an offer from a competitor that is too good to ignore. And then suddenly, there is an exciting amount in the bank account, and your future looks completely different.
Investing as an entrepreneur in French Riviera property
In both cases, you can finally do what you always wanted, but you don’t know exactly what. Looking daily at your bank account will get boring, and making another world trip to remote areas where poverty and green nature go hand in hand is also not on your bucket list. On the other hand, you don’t want to be surrounded by noisy people with bling-bling, and high-rise flats in Dubai don’t appeal to you either. Luxury problems more people struggle with; time to think about this and your pre retirement on the Cote d’Azur!
The most beautiful place on earth
The Cote d’Azur is perhaps the only place on Earth where all the good things in life come together; nature, the clean air, the healthy food, the wonderful sea, the mountains, the safety, the well-kept environment and so on.
We can confirm that; the quality of life here is fantastic. We meet many international entrepreneurs who can buy anything and live anywhere in the world. They ultimately opt for a home in the South of France. After all, you can fly quickly from this location to 121 destinations worldwide and reach the most varied places within an hour and a half by car. A market in Italy, an abandoned mountain village, a luxury car show in Monaco, a beach party in Saint Tropez, a ski resort with 70 slopes, a classy fish restaurant by the sea, or a hypermodern shopping mall with 300 shops. The Cote d’Azur is brimming with diversity. And for mini-city trips, cities such as Aix en Provence, Lyon and Barcelona can be reached within a morning. For Barcelona, you have to leave at 06:00 if you want to have lunch at the Playa de Barceloneta.
Investing in a villa in the South of France
Anyone with a severe amount of money in the bank wants to handle this carefully. Unfortunately, living off the interest on your savings is a concept from another century. Back then, you could still lead a quiet (but frugal) life with a million dollars in the bank. Today you have to pay the bank to keep your money. And you understand that money is reduced to a digital number in a digital account. With a simple push of a button, this money can also suddenly disappear.
It happened to an entrepreneur who saw the balance on his investment account at 0 one morning. The account manager could not tell where the millions had gone. After many phone calls, it became clear that a particular transaction form had not been entered internally. That is why the bank automatically decided to set the balance to 0.
These kinds of nightmares don’t happen too often (yet), but it’s been since 1900 that anyone with little savings knows that the best investment is in bricks. That has always been the case and always will be. Bricks that form a house together are the most stable investment you can enjoy living in and generate income with.
Two examples. An apartment in Cannes worth 1.5 million will generate a net income of 80,000 to 100,000 euros per year. And a luxury villa in Villefranche sur Mer can do this amount per month in high season. Count out your profit.
How much tax do you pay on your property?
In contrast to Italy, everything is neatly maintained in France, from street lights to trash cans and from security cameras to the cop’s outfit. Of course, we need tax money for that. Money that you also have to pay if you own a villa in (southern) France. This wealth tax, formerly known as ISF (Impot sur Fortune), has been called IFI (Impot sur la Fortune Immobiliere) since 2018 and is a specific tax on the real estate you own.
Not paying IFI tax, is that an option?
Nobody likes to pay too much tax if there are rules that can prevent that. Here are some examples from practice.
You buy a villa worth 5 million euros in your name. You must then pay 1% to IFI annually. That is 50,000 euros. After ten years of enjoying your villa, you, as the owner, are half a million poorer. But if you purchase the estate through an SCI property management company, you can divide the assessment per person between your (adult) children.
The more persons are listed as shareholders in the SCI, the less IFI everyone pays. Those who have many children can now finally benefit financially from this.
Or you buy a villa worth ten million or more and can pay for it in cash without any problems. You now pay year 150.000 euros tax. After ten years of enjoyment, you are suddenly one and a half million poorer. It is then better to use a private banking construction. In addition, you take out a 100% mortgage on your new villa, which means that the private bank is the owner on paper. With this construction, you will pay less IFI than if you buy the property in cash. The amount of tax will increase gradually until last year of the loan (year 20).
Private banking
The condition for every private bank is that you deposit around 50% of the mortgage amount in a portfolio that the bank manages for you. This is not a high-risk portfolio with bitcoin and ether currencies but a conservative portfolio with investments that give a low and inevitable return, such as government bonds. Nevertheless, the private bank will be able to profit from this. You can use part of this profit to pay your mortgage. In this way, the knife cuts on three sides: you have a better bank balance in your private life, you do not pay wealth tax on your property, and you lower your mortgage costs.
A realistic side note: the yield received on the portfolio can help to offset the cost of the loan (interest payments) so the carry is positive but perhaps not all the cost including taxes. It depends from the strategy and risk profile selected by each client.
For entrepreneurs this is an interesting structure. Instead of locking ten million in a property; you only invest 5,7 million. The other 4,3 million can be used to invest in your company or other real estate assets.
Entrepreneur with a bank in Monaco
Unlike French banks, which see entrepreneurs as a ‘red flag’, banks in Monaco love an entrepreneur. They prefer that you do not retire but continue to do business. You can then, for example, participate with your company, which is an exciting option for everyone.
Buying a French property with a Monegasque SCI has the extra advantage that your children with never have to pay inheritance tax on the property. A good protection for their future.
As a real estate advisor in luxury villas on the Cote d’Azur, we would like to introduce you to our network of financial advisors. Because buying a luxury villa in the South of France is done quickly, it is wise to discuss the purchase options in advance and to realize them intelligently. This requires outside expertise. Many wealthy buyers preceded you and lived here without any worries. Don’t hesitate to get in touch with us for an initial intake.
Protect your children from inheritance tax, save IFI taxes and buy your dream home while keeping a healthy cash flow.
When are you flying to Nice?
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