Whether you are planning to purchase a holiday home close to the vineyards of Burgundy, aspire to retire to a beautiful chateau along the banks of the Loire in the central region, or would like a second property for impromptu trips to the heart of Paris or Marseille, taxes will always be a consideration.
Following changes to the taxe d’habitation last year, your property tax liabilities will depend on whether you own a French home as a primary residence or have a property that you rent out, either all or some of the time.
All foreign nationals must understand the French taxes they may be liable for when purchasing or selling a property, paying tax against rental earnings, and calculating potential wealth tax obligations. Let us clarify all the property taxes in France you may be expected to pay, who they apply to, and the impact on your property purchase plans.
Taxe Foncière: The Local French Property Tax
Our first tax scheme is the taxe foncière – a tax all homeowners usually pay, calculated against a notional rental value of the property. Exact tax rates vary between regions, with notices issued to all homeowners in the area by the local Centre des Impôts Fonciers.
Residents who are over 75, live in the home as their primary residence, and either receive qualifying state benefits or have a low income are exempt from the taxe foncière. New build properties are often exempt for the first two years.
This tax is calculated on the 1st January, based on an assessment of the nominal rental value, which often does not correlate with any actual rental incomes earned – notional rental values are linked to an index originally published in 1970.
If you are buying a home, you’ll find an estimate of the taxe foncière liability within the particulars; the average cost works out at roughly €10 to €20 (£9 to £17) per year per square metre, with an average total charge in 2022 of €298 (£255).
Paying French Taxe d’Habitation on a Second Home or Holiday Residence
Reforms introduced in July 2023 mean this tax is now payable only on properties that are not the owner’s principal residence. The calculation works similarly to the taxe foncière, using a notional rental value.
Most second homeowners pay a rate equivalent to that owed through the taxe foncière system, although there are thresholds and exemptions, which mean the tax charge may change. For example, second property owners can claim housing tax relief if they have children, with deductions of 10% to 15% for every dependent child.
Rental income earned from a French property will normally be taxable at the standard income tax rates, beginning at 11% for annual earnings of over €11,294 (£9,669). Higher-income tax rates of 45% apply to incomes over €177,106 (£151,620) with additional social charges of 17.2%.
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Cotisation Foncière des Entreprises (CFE) Tax on Furnished Rental Properties
CFE is a tax levied against homeowners who let out a furnished property as a business activity. Translating to a ‘property tax on companies’, CFE is paid annually and, as with the previous two tax categories, is calculated based on the property’s rental value.
Owners of furnished rental properties who earn under €5,000 (£4,280) a year can normally claim an exemption. Note that second homeowners with an unfurnished holiday home or rental property are not subject to CFE charges.
Understanding French Wealth Tax on Property Ownership
The French tax system levies an annual wealth tax based on the value of your property portfolio, called the Impôt sur la Fortune Immobilière or IFI. If you own real estate assets worth €1.3 million (£1.11 million) or more, you may be liable, although properties are assessed for IFI from a value of €800,000 (£685,000) and above – anything below this is not taxable.
IFI tax rates depend on the total valuation, with most affluent property owners subject to a 0.5% tax rate on properties worth up to €1.3 million (£1.11 million), with progressive increases up to an upper limit of 1.5% for property assets worth €10 million (£8.56 million) or more.
Non-residents with properties in France may be required to pay IFI, although only real estate within the country is assessed. Tax residents will be evaluated for IFI based on all their worldwide property assets. All real estate is included, such as a primary home, investment property, rental residence and second home. However, you can claim a 30% deduction in the assessed value of your main home for IFI tax purposes.
Foreign nationals who are new residents in France and who were previously domiciled in another country will be assessed for IFI solely on their French properties for the first five years – after that, all global real estate assets are included in the calculations.
Capital Gains Tax on Properties in France
The French capital gains tax system exempts primary homes, so if you own a principal residence in France and live there at the time of sale, you will not usually incur a capital gains tax charge. In some cases, you may claim exemption if you were not living in the home at the date of the sale but were within the last 12 months, depending on the circumstances.
Other property assets may attract a capital gains tax liability on the value earned in excess of the original purchase price. The standard capital gains rate is 19%, but social charges may apply – typically added at 17.2%. Additional surcharges are calculated progressively based on the gain made, with a 2% additional social charge for gains of over €50,000 (£42,800), rising to 6% if the net gain exceeds €260,000 (£223,000).
Capital gains tax charged on property sales is capped at 42.2%, and property owners who make a taxable gain at the point of sale but have owned the real estate for a significant period can claim tapered relief. For example, if you have owned a home for 22 years or more, you can claim an allowance of 6% per year.
Further, social charges drop after five years of property ownership and are not payable if you have owned the property for 30 years or longer. Capital gains tax can sometimes be waived if you use the gain to reinvest in purchasing a primary residence if you have not owned a habitual home in France within the last four years.
Calculating French Property Tax Liabilities as an Expat Owner
Some of these tax charges may depend on whether you are a French tax resident or a British tax resident who spends some of the year in France but lives primarily in the UK.
Broadly speaking, British nationals are liable for taxe foncière, capital gains taxes, income taxes on French rental incomes, the IFI wealth tax, and the taxe d’habitation on a second home. However, they may be able to pay a reduced social charge rate of 7.5% if they hold an S1 healthcare certificate.
For more information about property tax in France, how these apply to your real estate ownership, and factoring in these costs, please contact the Chase Buchanan Bordeaux team.
*Information correct as at March 2024