Buying real estate in France in 2023: French Property taxes
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If you are buying a property in France in 2023 then you need to be aware of the real estate taxation costs involved. Often the French property taxes can have a big hit on people's budgets. Paddy Gibbins, from Artaxa Immo Real Estate, gives the low down on French Property taxes. This is important to know from a property investment perspective, because these costs are in addition to the house purchase price. You also need to be aware of the French tax structure when it comes to Capital Gains and Inheritance laws, because these will affect your business model.
French Property taxes - purchasing
In France there are two main property taxes payable for new build purchases. In total these taxes amount to just over 20 per cent of the value of the property (see Buying a new build in France). When purchasing a property more than five years old, there are three separate taxes payable with a maximum tax payable of just under 9 per cent.
A Notary is basically a specially trained property lawyer. The Notaire, unlike property conveyancing lawyers in other countries, is also responsible for calculating all the property taxes due. The best way to see a Notaire is to imagine them as a tax collector. They will draw up the house purchase contract and they may provide you with advice over boundary disputes, etc. But this is not their primary role and if you have particular questions it is advisable to engage a Notaire to specifically undertake this work for you (rather than assuming it will automatically be included in the purchase process). Notary fees are calculated in bands at varying percentages from 5 per cent for the first €3,000 and then incrementally down to 0.3 per cent on the portion exceeding €120,000. These fees are quite variable so your financial advisor should outline them to you in advance of the purchase (see the Role of a Notary).
French Capital Gains Tax
There is a terribly complex method of calculating Capital Gains Tax in France, depending on residency status and length of ownership. In the main, Capital Gains Tax is not levied on properties which are the Owner's principal residence and for which he/she has Owned for at least 5 years.
Capital Gains is calculated based on the difference between the sale and purchase price and is calculated with 10 per cent allowance for acquisition costs and 15 per cent discount for repairs and improvements (or more if documented). There is a small threshold of about €10,000 depending on marital status and number of dependants but all gains over this limit are taxed at 33.3 per cent.
The impact of the French Capital Gains tax is that it puts a brake on property speculation. It is not as easy to fix-n-flip properties in France because the Capital Gains hits the profit marhins. Property investment decisions in France therefore need to be based on a 5-10 year model.
This is an ongoing property ownership tax that is payable annually. The Taxe Fonciere and is based on 50 per cent of the 'valeur locative cadastrale' (land tax assessment value). The value is calculated by multiplying the cadastral revenue by the rate set for the commune in question. In simple terms, the taxe fonciere is calculated based on the square metre size of your property, multiplied by the local valuation rate. One thing to be careful about is that the square metreage of your property may not just be your habitable living space (so a garage for instance would not normally be included) but it could include anything with a roof on it. So for instance if you add a front porch, this will increase your taxe fonciere. Similarly, if you build a large summer kitchen with roof, this also could be considered in the calculation. The taxe fonciere varies by town and village, but for a 4 bedroom villa you would expect to pay between €1200-1600 per year. It is possible to pay the taxe fonciere in lonthly installments, rather than in one hit.
The taxe d'habitation is payable annually. In reality it is not a property tax as such. It is more a local communal tax to pay for the local services such as garbage collection, roads, street lighting and to pay the staff of the local Mairie. The reason why it is not a property tax is because the tax is levied on whoever is the occupant of the house on 1 January each year. So if you rent out your property, then your tenant is responsible for paying the taxe d'habitation.
But, if they move into the property on the 2nd January and stay up until 31st December - then you as the landlord will be responsible for paying the taxe d'habitation. One other thing to be aware of is that if you only visit your property a few weeks a year and the rest of the year it is shut up, you may be exempt from this tax. But be careful, because the assumption of the French tax authorities is that if your house is capable of being accessed during the year and it is normally habitable (i.e., it has beds and furniture); then you probably have to pay the tax (but possibly at a reduced rate).
The taxe d'habitation will vary quite a lot according to where you live and the type and size of your property. Some towns and villages with a lot of local services will have quite hefty taxe d'habitation rates. Other smaller villages will have quite light taxe d'habitation rates.
In France at the moment this tax is also currently undergoing complete reform. President Macron made it an election pledge to abolish the taxe d'habitation for 80% of French households. In the French budget, published in September 2020, the French Government confirmed that the tax will be abolished completely by 2023, but only for properties which are declared as the Owner's principal residence.
If an Owner owns 2 properties in France - a main property and a second holiday home - the Owner cannot simply switch his/her principal residence to the house with the most expensive taxe d'habitation. As the website Droit Finances notes:
A principal residence is the place where the tax payer usually resides and where he/she has the center of his family and professional interests. To check the veracity of the information provided by the taxpayer with several dwellings, the tax authorities can, for example, take into account their energy consumption, their place of work, their children's school, etc. in order to determine the place of his principal residence.
SOURCE: Principal residence definition
Wealth taxes in France
Wealth tax, or 'impot sur la fortune', (IFI) is a tax levied on the annual Real Estate asset values of an individual. It is paid by any household resident in France. So this is not a tax on individuals but a tax on the group assets of a household. Non-residents of France may also have a wealth tax liability, but only on their French property assets. The Wealth tax kicks in for French households whose combined worldwide assets are valued at more than 1 300 000 € Euros on 1st January 2022. Real estate assets whose net worth on January 1 is less than this amount, is therefore not subject to the IFI.
It should be noted that a 'household' is defined as including a spouse and dependent children. It should also be noted that stable unmarried couples (people in cohabitation or a civil union) are also taxed together.
A lot of people get scared by the "dreaded French Wealth Tax". I recently did a calculation for a client using an online tool. For an annual net wealth of €2,500,000 the tax came to about €2,500 per year. This is not insignificant, but when you consider all the benefits of being able to access the French healthcare system (which is really first class), the amazing infrastructure in France and the general quality of life - it is not that much of a burden.
Tax on rental income
Rental income in France is taxed at a flat rate of 25 per cent for non-residents. Nationals are taxed on a sliding scale with a maximum taxable rate of 25 per cent. If you do rent out your house in France for summer season rentals, then you are also required to declare this with the local Mairie and you maybe liable to pay the taxe de sejour (tourist tax). This is not a large amount (normally €0.50 per person per night.
Normally, if you rent out furnished accommodation on a regular basis, then you are liable to pay the local business rates (Contribution Economique Territoriale (CET) ). In my personal experience this costs around €400 per year, but it will vary depending on your location. However, the good news is that if you rent out your principal residence on a seasonal basis, then you will normally be exempt (provided that you can prove that this is just supplementary income rather than you principal source of revenue). The tax authorities will divide your annual rental income by your total annual revenue to arrive at the decision of whether you are exempt or not. It also should be noted that some commercially-minded local mayors may decide to waive the imposition of the business tax (and the tourist tax) because they are keen to bring in tourists into the town or village.
If you do decide to rent out your property on a semi-regular basis, it may also be worth your while to set it up as a mini-business in France (either as an Auto-Entrepreneur or as a Micro-Enterprise). If you do set up a business in this format then you will obtain three years exemption from business rates. The way I would look at this is that you may not want all the hassle of setting up a French business (even though an Auto-Entrepreneur is very easy to do), one massive benefit it does provide is that it will automatically lead to you receiving your French health coverage (carte vitale) and this is an enormous benefit (see LMNP real estate tax scheme France for more details).
French Inheritance tax
Inheritance tax is payable in France at rates varying from 5 per cent up to 60 per cent, depending on the relationship between the donor and recipient and the value of the property in question. As with other countries it is possible to alleviate some of this tax bill by choosing the means by which you purchase the property.
The "usufruct" or life interest structure is often used to reduce taxes payable in such instances, it is therefore important that proper legal and fiscal advice be taken before consideration is given to any purchase.
Also, whilst inheritance tax is pretty steep in France (esecially if you do not plan for it in advance), no tax is paid on the first €100,000 that a person inherits. However, the tax is charged on values in excess of this and the tax must be paid at the time of inheritance.
Similarly, it is possible to purchase property in France and to point it into a joint family trust (SCI company). In broad terms, each member of the family will own a share in the SCI company, which in turn is the official owner of the property. If a family member dies, his/her shareholding is then distributed to the remaining shareholders. The asset being transferred has no value, so there is no inheritance tax to pay. The SCI Company will involve some annual costs, but with an accountant that knows what he or she is doing, this can be offset against any annual tax to pay.
If you are interested in any of these measures to reduce potential inheritance tax, I can certainly recommend that you speak to Sebastien Giordano and Jennifer Goube from the French Accountancy firm AUGEFI, based in Sete, France.
Email: French Business Advice
Telephone: +33 4 67 18 62 01
Paddy Gibbins is the Managing Director of Artaxa Immo, a French real estate business that specialises in helping Foreign investors buy French property. The agency is based in the beautiful wine village of Magalas, but provides property buying and sales teams across the Languedoc region. Prior to setting up Artaxa Immo, Paddy was heavily involved in the Montpellier buy-to-let market.
Artaxa is a genuinely International real estate firm, employing multi-lingual staff in the three regional offices. You can contact Paddy for an informal chat about your buying and selling needs on +33 04 67 28 20 35. Alternatively, drop him a line at email@example.com