Property Taxes
The two local French property taxes are based upon a notional rental value for a given property. The tax rates vary across France as they are set at local and regional levels to meet the relevant budgets. The theoretical rental values are also amended from time to time to keep pace with inflation.
Taxe d’Habitation
This tax is due on the first of January every year and is paid by the occupier of the house on that date. If the house is in need of total renovation and is therefore incapable of occupation then you may be able to avoid this tax – get in touch with the local mayor and make your case.
If you are over sixty you may be able to arrange a reduction in the rate applied to your property.
Taxe Foncière
Again this tax becomes due on the first of January of every year but it is up to the property owner rather than the occupant to pay it. If you are buying a house in France it is normal for this tax to be apportioned between you and the previous owner based upon the number of days that you both own the property in the year of purchase.
When the writer made a very small land purchase recently the notaire set the share of the Taxe Foncière he had to pay as “a cup of coffee” – the exact amount being too trivial to calculate. However if you are buying a large French property early in the year you may find that the sum is somewhat greater.
As the Taxe Foncière demand is sent to the property owner then complications can arise if the relevant French agency loses track of your address if it is different to the property address. If you do not get your bill in January then it is probably wise to take some steps to find out why not. Late paid bills are subject to a premium ("une majoration") and while your French property taxes will probably be somewhat lower than their equivalent in the UK you will not want to have to pay more than you should.
Personal Taxation
If you are a “resident” of France or run any sort of a business in France such as letting your holiday home to others then you are liable to French income tax.
You are deemed to be a French resident for taxation purposes if you spend more than 183 days on French soil. The days are counted cumulatively (they do not need to be consecutive) and this status is recognised by both the French and UK fiscal regimes.
The best advice is to locate a qualified French accountant right from the start and get details on the “regime” you will be working within and thus the records you should keep and the expenses you will be able to allow against your taxable income. Do not expect this to be similar to what you are used to in the United Kingdom and watch who you take advice from. Different sorts of businesses are treated very differently for tax purposes in France.
The French tax year is the same as the calendar year so if you start any sort of enterprise you should keep scrupulous records and make sure that you sign up with an accountant before the end of the year. Your accountant will understand how to prepare your books and will complete the rather complex French tax return for you. Money well spent, as even fluent French speakers find these forms almost indecipherable.
Value Added Tax (TVA).
If you are running a business in France then you should be aware of the potential need to register for TVA and to keep TVA records. TVA thresholds (the level of business turnover that requires TVA registration) are much lower in France than they are in the UK. Once again, the best advice is to be obtained from a French accountant who can advise you on your liabilities and record keeping as well as help you with the registration process.
Capital Gains Tax
From 1st January 2004 the capital gains tax regulations as applied to property sales have been greatly simplified. If you are in the process of selling a property then the effective date of that sale could mean that the earlier tax regime applies. For reference, an outline of the Capital Gains Tax regulations as they were up to and including December 2003 may be found below.
All principal private residencies in France are exempt from French Capital Gains Tax. There are no longer any time conditions that need to be fulfilled for this exemption.
If you are not resident in France but you have been resident for two or more years then again you may sell your property without attracting capital gains tax. This only applies however (for non-residents) to the first time you sell a house in France. Residence can probably be taken to mean that you have not only lived in France for the qualifying period but that you have submitted a tax return to the French authorities for the years in question.
When assessing capital gains liabilities then you will automatically be allowed 7.5% as acquisition costs and 15% as renovation costs provided you have owned the property for 5 or more years. Actual costs, supported by VAT receipts, that exceed the automatic allowance may be claimed if that is to your advantage.
There is no longer any sort of indexation for inflation but a capital gains tax exemption will be applied at a rate of 10% per year from the fifth year of ownership - thus reducing your liability to nothing after 15 years. Capital gains tax is not payable on properties sold for less that €15,000. There is also a tax free allowance of €1,000 per disposal.
The notaire handling a property sale is now required to calculate any capital gains tax liability and to collect the tax from the sale proceeds. This again is a simplification of the procedures.
The Capital Gains Tax rate is currently set at 16% for French residents and residents of other EU countries. French residents also have to pay a social surcharge of 10%. Non EU residents will be charged at a rate of 33% regardless of their nationality. Watch that last point - even if you are a French national the rate is higher if you are a resident of (say) the USA at the time of a property sale.
Our advice is still to keep careful records of all expenditure on your house and to keep all receipts in a safe place. Your renovation costs could well exceed 15% of the property value and you might want to sell in less than five years in any case. There are stories circulating about the French taxation authorities rejecting receipts for materials purchased outside of France. One can understand their reluctance in some instances – how can they differentiate between expenses incurred in maintaining and repairing your principal place of residence (say in the UK) and those that relate to your holiday home? They are clearly prepared to accept the ‘prima face’ case that all French expenditure on building materials is to the benefit of your French property.
This is probably not the best section of the Dream Properties Dordogne web site to discuss the relative merits of UK and French building materials suppliers but it is our opinion that good record keeping will always win the argument. If you clearly identify the materials purchased and the project to which they were applied we can see no difficulty in expenses being allowed irrespective of the country of purchase.
Just one note of caution. If you regularly buy and sell houses then you might be deemed to be running a property business and that falls within an alternate tax regime with some fairly unattractive tax rates.
We have not covered Capital Gains Tax liabilities arising from non property sales here and suggest that you take qualified tax advice on such issues should you think you might become liable.
Capital gains Tax prior to 2004
If your French house was a “second home” or you sold your French property within a year of purchase then you were liable for Capital gains tax on any increase in it’s value. The Capital Gains Tax liability reduced with time and you could offset the costs of renovation against your liability.
If you owned your second home for more than 32 years then you were not liable for French capital gains tax on it’s disposal. If you disposed of your French property asset in a shorter timescale then a sliding scale was applied to asses your liability. The liability was assessed upon the sale price (less agency and legal fees) less 10%. You could also offset renovation and building work expenses provided that you have kept the VAT (TVA in France) receipts.
If your second home became your principal place of residence at some time after the purchase then the situation changed. After a qualifying period of residence your house will have lost it’s liability for capital gains tax.
Gift Tax and Inheritance Tax
Just as in the United Kingdom, gifts of property during your lifetime and inheritance of property by your heirs is subject to taxation. At the current time, the generous exemptions and allowances operated within the UK tax regime are not reflected in France. The inheritance tax rate for spouses is currently around 5% and this can rise to a massive 45% for large properties inherited by more distant relatives.
Leaving your property to an unmarried or gay partner can attract inheritance taxes at the highest level as there is no legal relationship between you. France introduced PACS to help formalise relationships in such circumstances but this has (so far) only reduced taxation levels by around 50% and there is a three year delay between signing a PACS agreement and it becoming effective for inheritance tax purposes.
Purchasing your French property using a tontine or SCI (see our section on French Property Inheritance Law) does not reduce or significantly alter the inheritance tax liability.
Up until very recently, inheritance taxes have not been collected on the island of Corsica although this exception is being gradually withdrawn.
Television licensee fee
(Service de la Redevance de l'Audiovisuel)
While not strictly related to the other issues on this page we would like to point out that any household in France that possesses a television set is liable to pay the license fee. The fee is payable even if you do not receive any television broadcasts - indeed even if the television is inoperable. The license is free for persons over the age of 65 and for those with disabilities assessed at over 80%.
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