What French property taxes do you need to be aware of when buying, selling or renting out a property in France? Here we look at the local taxes applied on French property, wealth tax, capital gains tax, and income tax in rental property.
You will have many things to consider when looking to buy French property, but don’t overlook taxation. Understanding and planning for the various taxes you may be liable for could save you from unwelcome surprises.
Be particularly careful with a second property, whether a holiday home or an investment. They are not regarded as your principal residence and you lose the main home reliefs.
Local property taxes taxe foncière and taxe d’habitation
These annual property taxes vary across France.
Taxe foncière is paid by the owner at the start of each year. It is based on the notional rental value of the property and the tax rate is determined by local authorities.
Principal residences are exempt if the occupant is over 75 and has a taxable income below a certain amount or receives certain state benefits. New houses may escape this tax for the first two years after construction. Other reliefs and exemptions may be available.
Taxe d’habitation is paid by the occupier, but since July 2023 it only affects second residences and holiday homes – the main home is always exempt. Again, it is based on notional rental value.
French wealth tax on property
France’s annual wealth tax on property, Impôt sur la Fortune Immobilière (IFI), affects households with combined real estate assets worth €1.3 million upwards. There is a €800,000 tax-free allowance, then rates start at 0.5% for assets up to €1,300,000, rising progressively to 1.5% for assets over €10,000,000.
Tax residents are assessed on the value of the household’s taxable worldwide real estate assets as at 1st January. This includes all residences, holiday homes and investment properties, whether owned directly or indirectly. The main home value is reduced by 30% for wealth tax purposes. You may be able to deduct debt against your properties, if you meet the conditions.
If you move to France after being domiciled abroad, for your first five years of French residency your wealth tax is only assessed on French property. Real estate assets owned outside France are ignored until your sixth year.
French capital gains tax on property
We all hope our property will increase in value, but how much tax will you pay when you come to sell French property?
Your principal residence is exempt from capital gains tax in France, provided it is your habitual and actual residence at the time of sale and you are in the French tax system. There can be a 12-month breathing space if you meet certain conditions.
Other than your main home, French residents pay capital gains tax on worldwide property assets at 19%, plus surtaxes, plus 17.2% social charges (reduced to 7.5% for Form S1 holders). The surtaxes rise progressively from 2% for gains over €50,000 to 6% for gains over €260,000. The maximum total rate is 42.2%.
Capital gains tax is reduced for the length of ownership, starting in the sixth year and with full exemption after 22 years. Social charges are also reduced after five years, but you have to wait 30 years to escape the charges completely, with the reduction weighted towards the last seven years.
A property may also be exempt if you use the proceeds to buy a main home for yourself, not having owned one in the preceding four years.
If you are in receipt of a state pension or disability card, you may be exempt from capital gains tax on real estate if your taxable income fell below a certain level in the previous two tax years and you had no wealth tax liability.
EU and EEA nationals, and nationals from countries with which France has entered into a tax treaty with a non-discrimination rule may be entitled to a one-time exemption of €150,000 on the net gain made on a French residence. If the sale takes place within 10 years of leaving France, and you were fiscally resident for at least two years, the property does not need to be your main home at the time of sale and can be rented out.
French income tax on rental property
If you rent out a French property, the net income is taxed at the scale rates of income tax, which range from 11% for income over €10,777 to 45% for income over €168,994 (for 2022 income), plus 17.2% social charges (reduced to 7.5% for S1 holders). The same applies to French residents who rent out property abroad, although a tax credit may be given to avoid double taxation.
The special 30% fixed rate of tax (20.3% if you hold a Form S1) of tax available for investment income does not apply to rental income.
French property taxes for UK residents
UK residents are fully liable for French income and capital gains taxes when renting out and selling French property. You also pay social charges, but can benefit from the lower 7.5% rate if you are an S1 holder. Tax (but not social charges) paid in France will be offset against your UK tax liability to avoid double taxation.
If the property rights you own in France amount to over €1,300,000, you are liable for French wealth tax (above the €800,000 allowance).
Your French investment property or holiday home is liable to the local taxe foncière and taxe d’habitation property taxes. The latter is paid by the occupier if you rent it out long-term.
Other tax and ownership considerations
If you die as a resident of France, your worldwide assets will be liable to French succession tax, though your spouse/civil partner is exempt on inheritances. Also research French succession law to understand the forced heirship rules before you buy French property, since the different methods of ownership can have an impact here.
If you are considering buying investment property, it is worth weighing up the tax implications compared to capital investments, particularly since the current tax regime favours savings and investments in shares, bonds, assurance-vie etc. There are other issues to take into account besides tax: for example, will you have sufficient asset diversification and liquid assets?
Take the time to look at all the various factors and have a chat with one of our local advisers to establish what your options are, and which is best for you.
Contact our enquiries team today to arrange a more personal consultation.