Whether you live in France permanently, or own a holiday home, you will need to pay property taxes in the same way that you do in most countries.
In France you need to foresee the payment of 3 direct compulsory taxes for the acquisition and maintenance of property:
- payment of registration fees for the acquisition of real estate (registration of ownership)
- and payment of annual taxes: property and residence tax.
When the owner sells the French property and there is an increase in value of real estate, he is obliged to pay a capital gains tax on the sale.
French homeowners should be aware of the following taxes when purchasing property, even if they are not French residents:
Registration Fees and Taxes
The first mandatory costs that buyers will pay when purchasing property in France, will be registration fees. They are paid by a Notaire (representative of the interests of the state) on signing the sale and purchase property contract “Convention de vent”. In fact, these fees and taxes are payments of re-registration of property ownership rights as the owner changes.
Registration fees and taxes calculation is based on principally the real estate location and vary from 5.09006% to 5.80665% depending on the property location (departmental fees). An additional fee of 0.1% and a notary fee, that is about 1.5-2%, is added to the result. Finally, registration fees and taxes for property 5 years and older account for 6 -7 %, for new buildings not older than 5 years, the amount of registration fees is about 2-3%.
A calculator to obtain and estimate the registration fees can be found here.
French OWNERSHIP tax (LA TAXE FONCIÈRE)
French ownership tax (Taxe foncière) is paid by the owner of any property (residents and non-residents) on the territory of France.
The tax authorities divide the land tax into two types: tax on buildings (taxe foncière sur les propriétés bấties) and tax on land (taxe foncière sur les propriétés non bâties). The latter is no longer levied locally and is levied nationally instead. The tax on buildings is paid on any property that is habitable, whether or not it is occupied.
Built-up land (buildings) is any kind of real estate, construction, and also the land surrounding it for industrial and commercial use (construction sites, warehouses, land used for placing billboards, etc.) It is levied in the commune where they are located.
Buildings and structures belonging to the state or local administrations (region, department, commune ...); buildings belonging to other states (embassies ...); the buildings of state institutions (universities, hospitals ...); religious buildings, buildings for farming are granted relief from the tax. An exemption is available against the main home if the occupant is 75 or over (or in receipt of certain disability or old age allowances) with low income. If the occupant is a person in receipt of l'allocation de solidarité aux personnes âgées (ASPA), or the l'allocation supplémentaire d'invalidité (ASI);or if occupant is a registered disable person in receipt of l'allocation aux adultes handicapés (AAH), he might be granted an exemption.
There are other exemptions and reliefs, but they are often limited in time: the owners of new residential buildings systematically have a two year exemption, as well as reconstruction and outbuildings; some social housing can be exempted from paying tax up to 15 years; some energy-efficient housing can not be levied to taxation up to 5 years.
Unbuilt land includes everything that does not belong to the above category of buildings: forests, fields, marshes and so on. A full tax exemption applies to any property owned by the state; roads, railroads, rivers, bridges; agricultural property. The temporary exemption from tax can be: for the area planted with trees from 10 to 30 years, depending on the purpose of planting; for the land located in the protected area for rare and threatened species of Natura 2000. The owners of the land planted with walnut and truffle trees can have a relief from paying the land tax up to 50 years!
The tax is levied on the owner of the property on the 1st of January and for the whole year. In case that in the middle of the year there is a change of the property owner, the tax is levied proportionately to the time of property ownership.
Calculation of the land tax is based on a simple principle: the tax basis is multiplied by a certain percentage, approved by the local administration.
The basis of tax for Built-up land (buildings) consists of 50% of the cadastral lease value and 80% of the cadastral lease value for the unbuilt land. The amount of cadastral rental value depends on the type, total area and location of the property and all the advantages of this property.
For the owner of a three-room apartment with an area of 80 sq.m. located in Antibes, 100 meters from the sea, in a luxury residence, the land tax is calculated according to the following principle:
The cadastral rent for 1 sq. m., Apartments under these conditions is 10.42 euro / m2.
Theoretically, the apartment can be rented for 833.33 euros per month and, accordingly, the annual lease can bring the owner 10 000 euros (833.33 x 12).
The tax is calculated from 5,000 (50% of 10,000).
Payments to the local administration will be: utility tax 12.53% + departmental tax 12.42% + special tax 0.205% + garbage collection tax 9.50% + administrative costs 60 euros.
Total, the owner will have to pay an annual property tax of 1,792.75 euros (626.5 + 621 + 10.25 + 475 + 60).
The property located in the prestigious neighbourhoods has a higher rental value and, accordingly, a higher tax. Every year, at the end of August, the owner receives a tax statement in which the land tax is automatically calculated by the tax authorities. Owning several properties, the owner pays a tax for each property separately. The payment should be made no later than October 15.
French Residence Tax (LA TAXE D'HABITATION)
This is an annual residence tax imposed on an occupier of property in which they were resident on the 1st of January of each year. The tax levy on:
- all owners, all tenants living free of charge;
- any premises for permanent residence or for temporary residence (country or vacation residences).
The property should be equipped for living (have furniture, at least partially). This tax also levy on the structural elements of a building, such as a basement, a garden, a playground, a garage, and a parking space.
The exemption from this tax applies only to premises of local economic constitutions; Student housing in university residences or housing for boarding students; premises for members of the diplomatic or consular mission.
The principle of tax application is the following: the owner-investor who leases an apartment is obliged to pay the property tax; the tenant of an apartment will have to pay a residence tax.
The residence tax is levied on the occupier who is living in the house from the 1st of January. If the occupier is a resident of the premises after this date, for example, he has settled in the apartment since the 2 of January, then he is not required to pay tax for the current year.
The tax basis calculation is related to the cadastral value of the property lease. There is a tax reduction, but it applies only to the main residence of the occupier of a property and its value depends on the household size and the income thresholds. After the reduction application, the fixed rate of the communal and departmental tax approved by the local administration is applied.
Normally, all the reductions and exemptions described above are granted automatically by the tax authority based on the information from you; annual income tax return and the occupier does not need to apply to receive the entitlement.
If the owner (occupier) of real estate does not live permanently in the acquired house, and uses it as a vacation residence, then the tax amount is often very close to the property owner tax.
WEALTH PROPERTY TAX IN FRANCE (L’IMPÔT SUR LA FORTUNE IMMOBILIERE, IFI)
Buying property in France of more than 1,300,000 euros, the owner will have to pay a wealth property tax.
IFI, the wealth property tax, came into effect in 2018. The annual wealth tax (called ISF, l’Impôt de solidarité sur la fortune) is transformed into the property tax, IFI (l'Impôt sur la fortune immobilière). The new wealth property tax liability is now based only on personal real estate assets and not on company or commercial assets of a taxpayer. The tax applies to houses, apartments and their outbuildings, all the built and unfinished real estate, buildings under construction as of January 1, 2018, plots of land for building and other properties.
Individuals, tax residents in France with net market value of all real estate assets greater than 1.3 million euros on January 1, 2018, are liable for the wealth property tax. The tax applies to all worldwide property, regardless of its location, on the territory of France or abroad. Individuals who are residents of another state are also liable to the IFI on all property located in France if its total net value is equal to or more than 1.3 million euros. The tax scale remains unchanged with rates from 0.5% to 1.5%.
It is possible to optimize or avoid this tax if a number of conditions are met. The rule of optimization is more there are liabilities then less there is the IFI. The taxable base can only be reduced by deducting the taxpayer's obligations associated with taxable assets, for example, a loan, construction costs, etc.
Read more about the wealth property tax
3% tax (LA TAXE DE 3%)
The annual 3% tax of the real estate value is imposed when the property in France is acquired by a legal entity and the name of the real owner is kept in secret.
French companies or companies registered in the countries that have entered into a tax agreement with France providing information about the identity of all shareholders of the company are exempt from this tax.
French capital gains tax (LA PLUS-VALUE IMMOBILIÈRE)
By selling your property (house, apartment or land plot) at a higher price than it was spent on acquiring it, the owner implements capital gains. Capital gains are the difference between the sale price and purchase price. In France, the capital gains are considered as an income and are subject to taxation at the fixed rate of 34.5% (19% is the tax on capital gains plus 17.2% is the social contributions).
There are a number of important exemptions and allowances from French capital gains tax on the property sale. When applying the main tax at 19%, the basic rate of capital gains then the relief against the tax is granted over 22 years of ownership, commencing from the 6th year of ownership, as follows:
- No allowance for the first 5 years of ownership.
- Between 6 and 21 years of ownership: 6% allowance per year.
- For the final 22nd year of ownership: 4% allowance.
Since 2018 the rate of social charges (Prélèvements Sociaux) is 17.2%, applied in addition to the main tax itself.
In the same manner as capital gains tax, tapered relief is granted, but over a longer period of 30 years, commencing from the 6th year of ownership, as follows:
- No allowance for the first 5 years of ownership.
- Between 6 and 21 years of ownership: 1.65% per year.
- For the 22nd year of ownership: 1.60% in this single year.
- Between the 23rd year to 30th year of ownership: 9% per year.
Since the1st of January 2016, capital gains realized by non-residents of France tied to the social security system in another European country have been exempted from paying social charges (Prélèvements Sociaux).
More details about capital gains tax here.
Rental revenue tax
There are a number of different tax regimes for rental revenues and basis on which the owner will be charged (including social contributions). In general, there are two main tax regimes: micro-entreprise and regime reel but furnished and unfurnished properties are also taxed differently in France. As unfurnished properties have a long standard letting period of three years and a notice period of three months, it is typical to find that most short-term lets are furnished.
There is also a strong holiday property market in France, which can serve as a suitable short-term accommodation. Long-term holiday lets are also common, where the tenancy is agreed for several months.
French tax authorities also divide income by type of rental housing. This can be income from a long-term and from a seasonal (short-term) rent.
Unfurnished properties are typically rented to a person on a long-term basis. Owners can report their rental income on their personal income tax return using one of the following regimes:
Micro regime («Le régime micro-foncier») is also called Micro-foncier. This is applicable when rental income is less than €15,000 and a notional deduction of 30% is offset against gross rental income. This is beneficial where your actual costs are lower 30% of the income, in general, when you don’t have any mortgage on the property. Repair works and other types of expenses can not be deducted under this regime.
Real regime («Le régime réel») applies if your French rental income is greater than €15,000 or if you choose the simplified scheme because your actual expenses exceed 30% of the gross rental. Various expenses are deductible, such as a mortgage interest, agency fees, property tax, communal charges, local taxes, insurance, maintenance and repairs like replacement of boiler elements or pipelines, restoration of the roof, repair of the existing electrical installation, costs of diagnostics, management costs and others.
Furnished Properties that are typically rented on a short-term basis to a person give you two regimes when it comes to your taxes:
Micro regime (Le régime micro-BIC Bénéfices industriels et commerciaux) is also called micro enterprise (“micro-enterprise”), automatically available when the rental income is less than €32,900 per year. Bénéfices Industriels et Commerciaux (BIC) applicable to the income from furnished lettings, which is treated for calculation purposes as commercial income. Owners are permitted to take 50% of the rental income as a deduction at taxable income. It is generally more tax efficient to choose the Micro Regime if your actual costs are lower than 50% of the income.
Real regime («Le régime réel») applies if your French rental income is greater than €32,900 or if you choose the simplified scheme. Owners are permitted to take 50% of the rental income as a deduction at taxable income. It is interesting to choose this regime if the costs of the rent are more than 50% of the income.
Under this regime various expenses are deductible, as a mortgage interest, all types of local taxes due, insurance, management fees, cleaning, maintenance and repairs, advertising, accountancy fees, bank charges, utilities and others.
The tax authorities of France consider furnished property renting as a commercial activity as opposed to renting unfurnished housing.
Rental revenue tax would be due on any rental net income collected in France from renting a house.
The tax rate depends on the gross revenue of a person and the resident or non-resident status of the French property owner:
- for residents: rental income is added to other income and is subject to income tax and calculated on a progressive scale from 14% to 45%.
- for non-residents: rental income is taxed at a rate of 20%.
Example of calculating the tax on income from a long-term rent for a non-resident:
The income was 12 000 euros per year (there is a fixed reduction, since the amount of income is less than 15 000 euros) - 30% of reduction = (12 000 - 3 600 euros) x 20% = 1 680 euros.
If the amount of annual income is more than 15 000 euros, the real expenses (insurance, repair costs, interest on the loan and other expenses) are deducted from it. After this deduction, a tax rate of 20% is applied.
Example of calculating the tax on rental income:
The income was 20,000 euros per year - 50% discount = 10,000 euros x 20% tax rate = 2,000 euros tax.
If furnished seasonal rent the property is held through a French property company (Société Civile Immobilière (SCI), the tax authorities can automatically assign SCI to companies subject to taxation on the basis of company taxation. In this case, the taxation will be as follows: if the rental profit is up to 38,120 euros SCI is subject to a reduced taxation of 15%. The remaining taxes at a rate of 33.33%. If the members of the partnership choose dividends, then a 40% tax relief applies to them, and the rest 60% is levied as an income accruing from a movable capital for an individual.
INheritance TAX (L'IMPÔT SUR LA SUCCESSION)
The inheritance tax is levied on the heirs in case of the death of the owner of the real estate in France. The order of inheritance is advised to determinate when buying a property with a notary. The owner of the property can not freely appoint an heir, but there are mechanisms that control the inheritance process. According to the French law, the surviving spouse may be the sole heir, or inherit with the relatives of the deceased. The system of inheritance for the siblings and other relatives is based on 3 principles: order, degree of kinship and generation.
More on Inheritance Tax here.
It is necessary to take into account that the payment of this tax by the heirs is carried out depending on the buyer’s orders regarding the right of inheritance on signing the property acquisition.