A Guide to the Various Property Taxes in France
Description Page Property-taxes
Content Property taxes
The taxe foncière
This tax is an annual property ownership tax imposed on the owner, whether or not the property is actually occupied by them or rented out.
The tax is levied for the year in which it is imposed and payable by the person(s) owning the property on 1st January of that year.
The taxe d'habitation
This is an annual residence tax imposed on the occupier of a property in which they were resident on 1st January of each year.
If the property is your second home, even though you may not physically be resident on 1st January, the tax is still payable, provided the property is capable of occupation.
Thus, the law assumes that if you have the right of occupation of the property and it is furnished and habitable, then the tax is payable. Liability to the tax has nothing to do with the amount of time you actually occupy the Do not hesitate to seek advice from an independent tax consultant, the French tax authorities or your notary.
basis the tax is payable by the tenant.
Tenants of holiday lettings do not pay the tax, but any tenant occupying the property on 1st Jan on a permanent or even semi-permanent basis is liable for the tax. The rule applies whether the property is furnished or unfurnished.
Since January 2018 this tax is being abolished on a phased basis.
If your income is no higher than certain thresholds (which depend on family composition), then you receive a reduction in the amount of tax that you need to pay. This reduction, or relief, is called a dégrèvement or allégement.
Regardless of whether you are French or not, the fact that you own a property in the country means you are subject to French inheritance tax. Laws differ from those in Britain, as property owners can't bequeath their home to anyone. The central point to grasp with French inheritance laws is that your children are specifically protected from being disenfranchised from your estate.
That part of your estate that is earmarked for your descendants is called la réserve; that part of your estate that is freely disposable is called the quotité disponible.
Accordingly, you cannot freely dispose of any part of la réserve, which must be held for your children. You are only free to dispose as you wish of the quotité disponible.
Somewhat bizarrely, a surviving spouse is not a protected heir, although, unless you take specific action to disinherit them, they are entitled to a minimum of 1/4 of your estate.
The amount of la réserve and the amount freely disposable will depend on the number of your children.
The following table illustrates the entitlement children of the deceased receive under la réserve and the amount freely disposable.
- Table: La Réserve
|Spouse||1/4 of estate||3/4 of estate *|
|One Child||1/2 of estate||1/2 of estate|
|Two Children||2/3 of estate||1/3 of estate|
|Three Children||3/4 of estate||1/4 of estate|
*Only freely disposable in the absence of children, as they are protected heirs.
Thus, if you die leaving a surviving spouse and two children, the spouse will receive 1/4 of your estate and the children 2/3 of your estate, with the remaining 1/12th freely disposable, e.g. to your surviving spouse.
If you die leaving no surviving spouse and two children, the children will automatically be entitled to 2/3 of your estate, and you are free to dispose as you wish of 1/3 of your estate.
It is essential that you take advice from a local Notaire before signing a contract of purchase - known in France as the 'acte de vente' - as French law may prohibit you from leaving your house to the person of your choice in the event of your death.
Capital gains tax
As is the case in the UK, there is no capital gains tax applied to the sale of a primary home in France. However, if you are selling a holiday home, or a property that isn't your main residence, capital gains tax will be payable on any profit you make from its sale. Working this out is a highly complex process, which involves subtracting the costs of the sale and any home improvements from the gross profit made. This means it is vital that you retain receipts from any work and materials paid for in order to keep your home habitable. It's also a good idea to consult a French accountant when you decide to sell up.
The basic rate of capital gains tax is 36.2 percent for residents of France and EEA member states.
If you are a resident of France then the applicable basic tax rate is 36.2%. This sum comprises capital gains tax at the rate of 19% plus 17.2% social charges.
The rate is applicable from January 2018.
The rate and pace of abatement for holding period is different for determining the tax base for the income tax and social contribution.
Thus, the real estate gain is exempt:
• after 22 years for income tax,
• after 30 years for social contributions.
Detention Years are counted since the anniversary of the acquisition of the property.
IFI replaces ISF since January 1st 2018
Liability to the wealth tax will depend on a range of factors.
The assets that are included in the calculation will depend on whether you are resident in France :
• Resident - If you live in France the whole of your worldwide real estate assets and investments will be taken into consideration for the purposes of the tax.
• Non-Resident - If you do not live in France only real estate assets in France are considered, subject to the terms of any tax treaty between your home country and France.
In determining your residency status the tax authority will apply the general rules as set out in the French tax code, subject to any international agreements that may be in place on a country by country basis.
There is an exemption from the tax for five years on foreign assets for those who become resident in France. The concession applies irrespective of nationality.
Thus, for the first five years of you becoming resident in France (to 31st December of 5th year), you will only be liable for the wealth tax on those real estate assets located within France. The assets of the whole household living together will be taken into consideration, including spouse, children (minors), and partner. Similarly, if you live together as a couple in free union the wealth of both will be assessed.
Children of adult age, even though they may part of your household for income tax purposes, are separately liable on the value of their own assets, if greater than €1.3m.
The tax does not apply to company or commercial assets, except in relation to personal property held through a French property company, a société civile immobilière (SCI).
IFI is an annual tax, and the applicable date for valuation of assets and determination of the household is 1st January of each year.
Accordingly, whatever changes occur to either your assets or your household during the year of declaration is not relevant for the purposes of assessing liability to the tax, as it is based on the situation as at the beginning of the year.
As stated above, those who relocate to France but were not resident in France during the previous 5 years are only taxable on their property located in France for the first 5 years of their residence, subject to any tax treaty that may apply.
The scope and evaluation of assets is on the following basis.
i. Taxable Assets
The assets that are taxable under the IFI are all real estate and investments in real estate.
Specifically, they include:
• The main residence, as well as second homes, land, and rental property;
• Shares held in French property companies, called sociétés civiles immobilières (SCI);
• Shares held in property funds, such as SCPI (sociétés civiles de placement immobilier) and OPCI (organismes de placement collectif en immobilier), including those held via an assurance vie policy;
• Shares held in companies up to the value of their property, where you hold at least 10% of the equity.
ii. Exempted Property
Business property assets are totally exempt, but only provided:
• They are used in the exercise of a business activity;
• The activity is exercised by the owner or their partner;
• It is the main activity of the owner;
• The property/investment is necessary for the exercise of the business activity
In addition, woodland or woodland investments are exempt at 75% of their value, but you need to declare at their full market value.
iii. Valuation of Assets
The value of the assets is as at 1st January of the tax year.
The principal residence benefits from a 30% discount on its open market value
Debts are deductible, provided they existed on 1st Jan of the tax year, that they are the responsibility of the owner, and relate to the taxable assets.
Those debts that are taxable include those for the purchase, improvement or maintenance of property, as well as debts in relation to the purchase of property investments. Similarly, debts between family members are not deductible, unless they are taken under normal market terms.
Debts in connection with fully exempt assets are not deductible.