Understanding French Real Estate Tax

Americans seeking to purchase real estate in France have a unique opportunity to invest in some of the world’s most beautiful properties. However, for non-residents, the French real estate tax system can be confusing, and understanding how much to pay and to whom is often a challenge. Fortunately, we’ve created this guide to help Americans understand French real estate tax so you can navigate this often complex system and get the most out of your investment.

Local Property Taxes

Once you buy a property in France, you’re obligated to pay two local taxes: Taxe Foncière (property tax) and Taxe d’habitation (housing tax.)

Taxe Foncière – Property Tax

All French property owners must pay an annual property tax, regardless of whether they live at the residence. The amount paid is determined by two things, starting with the cadastral rental value. This term simply means the property’s assigned monetary value. Every year, this amount is updated and then reduced by a standard 50% to make up for how much the property owner paid for management, maintenance, and insurance. The resulting amount is the “base” that is then taxed at whatever rates are approved by local authorities.

Depending on when you purchase the property, the seller is usually responsible for paying the current year’s taxes; however, in most circumstances, both the seller and the buyer will reach an agreement to share the tax costs.

Taxe d’Habitation – Housing Tax

You’ll only pay a housing tax if the property you’re purchasing is a second home. The tax authorities determine the amount you’ll pay by your occupation status on January 1st of the current tax year. They do this by multiplying the local tax rates by the property’s cadastral rental value.

French Real Estate Wealth Tax

If you’re purchasing a French property over 1.3 million €, you’re responsible for paying Impôt sur la Fortune Immobilière (IFI), also called theFrench wealth tax. This tax applies to all French tax-registered persons, even if they’re living abroad. Generally due by the end of May, IFI is calculated by the household, so it can apply to married couples, individuals, civil partners, and children under 18 with assets.

There’s six tax brackets for IFI ranging from 0% to 1.5%, and it’s important to note that even though the tax is only applicable to properties over 1.3 million €, the tax rate is calculated starting at 800 000€. For non-residents, only French properties are counted.

The IFI rates and tax brackets are:

• 0.5% for under 800 000€
• 0.5% for over 800 000€ up to â‚ 1 300 000€
• 0.7% for over 1 300 000€ up to 2 570 000€
• 1% for over 2 570 000€ up to 5 000 000€
• 1.25% for over 5 000 000€ up to 10 000 000€
• 1.5% for over 10 000 000€

There are discounts available for IFI for those who qualify. They include:

• When calculating the value of all your French assets, your primary residence could be discounted by up to 30%.
• Some agricultural and professional properties may be exempt.
• Certain charitable organizations may reduce the IFI by 75% of the total gift with a cap of 50 000€.
• Your mortgage is deducted from the property value calculation.
• If the property has sitting tenants, it may be eligible for a discount.

The IFI is considered a declaratory tax, which means you’re responsible for deciding whether you should declare your assets. If you choose not to and the local tax authorities determine you qualify for the tax, they could enforce overdue payments, including penalties.

Capital Gains Tax

When considering French real estate tax, it’s important to keep in mind the capital gains tax. Only applicable when selling your property, all non-residents have the same rate: 19%, with Americans enjoying an exemption from the hefty social charge applied to French residents, but you are responsible for a solidarity tax of 7.5%. While the amount of capital gain tax is high, you can benefit from tapered relief starting at six years of ownership. The allowance percentage rate of tax is:

• 6% per year between years six and twenty-one.
• 4% for year twenty-two

After twenty-two years of residency, you qualify for capital gains tax exemption.

As a non-French tax resident, you may be exempt from paying capital gain tax if you qualify for these conditions:

• No third person has occupied or rented the property since January 1st of the year prior to the sale. There’s no time restrictions for this condition.
• You sell the house within ten years of leaving France.

The Difference Between the French and American Real Estate Market

When buying an apartment located in France, the vast majority of sales are done directly, whereas in Manhattan nearly 95% of properties involve a broker. In America, the buyer signs a contract and puts down a deposit, and the house goes into escrow until the contract is fully executed and the sale is complete. In France, the sale goes through a notaire, and once the contract is signed, the seller is bound to the sale, while the buyer has seven days to reconsider without penalty. Once the waiting period is over, the deposit is transferred into an escrow account until the final signatures. Another difference is the property tax rate in cities like NYC compared to Paris. French tax is significantly lower, with those in New York City paying nearly 10x more than Paris, as shown in the table below.

                                        

Property tax in France remains lower than many major cities in the United States, regardless of the value of the property. Whether you’re purchasing a property for extra rental income or plan to live there year-round, you’ll want to keep the annual tax and property tax in mind.

Conclusion

Understanding French real estate tax is crucial when purchasing a property. Knowing how much you’ll pay will help you make an informed decision and ensure you meet all local tax requirements.