Buying a house in France is undoubtedly an exciting time for most people. However, there are financial issues other than the purchase price to consider. If you own a house or land in France, you'll probably be subject to various French taxes. Although a Notaire, local estate agent or property lawyer will be able to explain your liabilities to you, it usually pays to be in possession of all the tax-related facts before buying a property in France.
The taxe foncière
There are two main taxes that apply to all residential property in France. A land tax - known in France as the taxe foncière - applies to the vast majority of homes in the country. It is payable in arrears every year by 15 October, and its nearest equivalent in the UK is the Council Tax. This charge usually covers local services such as rubbish collection and the maintenance of local roads, but it can differ greatly depending on where in France your home is.
You should enquire about taxe foncière from the moment you take ownership of your French property, as it is the owner's responsibility - not the inhabitant's. This tax will be payable on a pro-rata basis from the date your house purchase completes. However, it is usually possible to pay it in monthly instalments rather than with a lump sum.
The taxe d'habitation
Every habitable building is liable for the taxe d'habitation - although it is the occupant's responsibility to pay. Any home that is furnished and is connected to the main utilities will be eligible for this tax, and that applies to properties that are occupied for just a few weeks of the year. The tax charged depends on the size, location and market value of the home in question. There is also the possibility that an individual's income will be taken into account when calculating the tax payable. You’ll also have to pay a TV licence, alongside with the “taxe d’habitation”.
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. Children and dependants are given priority, but spouses and partners aren't afforded the same status. 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 34.5 percent for residents of France and EEA member states. A sliding scale of charges also applies (on profits of EUR50,000 or more) to large gains in the form of a supplementary tax. If you make more than EUR250,000 from the sale of your French property, you'll be charged six percent of the total profit you made - over and above the initial 34.5 percent. It is possible to reduce this liability by setting up a property company called a Société Civile Immobilière (SCI), but you should take detailed advice and guidance from a local accountant before taking this route, as not everyone is eligible.
The much maligned Wealth Tax - known in France as the impôt de solidarité sur la fortune (ISF) - applies to individuals with net assets of more than EUR1.3million. Unfortunately, this tax applies to property, which means lots of French residents with large houses are being forced to pay tax bills they simply can't afford. However, there is a 30 percent allowance on a main residence. This means that the first 30 percent of your home's value won't be taken into consideration when the wealth tax is calculated. There are also a number of deductions that can be applied, which should reduce your liability substantially. In France, a non-resident will be subject to wealth tax only when the total value of the assets located in France, minus the acquisition bank debt exceeds EUR1.3million on January 1st of the considered year. Financing the purchase of a property through a bank loan can therefore in certain cases help reduce the wealth tax (ISF) Please contact BNP Paribas International Buyers for more information regarding mortgages in France. If you think you're liable for this wealth tax, it's probably best to consult with a French accountant as soon as possible.
Before you buy your dream home in France, assessing what your tax liabilities will be is essential. However, with the right advice from local accountants and property professionals, there is no reason why your investment should lead to significantly higher property taxes than you'd pay in Britain or other EU countries.