For many, owning property in France is a lifelong dream. With the right knowledge and a clear understanding of French property tax regulations, you can avoid potential complications often encountered in international real estate transactions. Buyers should be prepared for extra costs and taxes, typically ranging between 8% and 10% of the purchase price.
This guide will help you stay informed about potential expenses, covering one-time taxes and fees, loan-related costs, and ongoing annual property taxes.
Purchase Cost: Taxes and Fees When Buying a Property
Cost: 5.09% to 6.40%
Regardless of whether the property you intend to purchase is classified as a new building, acquiring real estate in France will trigger real estate transfer tax (RETT) and/or value added tax (VAT).
New Building
Cost: 7%
If the property was built more than five years prior to the purchase date, or if the buyer does not plan to undertake any reconstruction, the acquisition is generally exempt from VAT.
However, other taxes will apply, such as:
- Real estate transfer tax, payable at the time of purchase (5.09% of the property price)
• Real estate security contribution (contribution de sécurité immobilière) (0.1%)
• Including notary fees, the total acquisition cost is approximately 7%.
Resale Property
Cost: 20% of sale price, plus 2.5% in additional taxes
If the property was constructed less than five years prior to the purchase date, it may be classified as a new building, making the acquisition subject to VAT at a rate of 20% of the sale price.
Additionally, for resale properties, other taxes apply, including:
- Land registry tax (taxe de publicité foncière) at 0.715%
• Real estate security contribution at 0.1%
• Notary fees at 0.825%
These taxes are calculated on the net purchase price (which may be increased by any additional costs outlined in the sale deed).
• The total purchase cost is approximately 2.5%.
Rental Income Taxation
Cost: X%
- Rental income is typically taxable in France under international tax treaties. When the property is owned directly by an individual, the rental income is subject to progressive income tax rates plus social contributions at 17.2%.
- Net rental income (revenus fonciers) is calculated as the difference between:
(a) the rental income, and
(b) the expenses related to the property.
- For unfurnished rentals, no depreciation allowance can be deducted from the rental income.
- For furnished rentals, a depreciation allowance can be applied, based on the property’s purchase price (excluding the land value).
- If the property is owned through a company, the rental income may be subject to French corporate income tax on either the actual rental income or deemed rental income.
Ongoing Costs of Ownership
IFI (Impôt sur Fortune Immobilière)
Cost: 0.5 to 1.5%
The IFI (Impôt sur la Fortune Immobilière) is a tax introduced on January 1, 2018, replacing the former wealth tax. It applies exclusively to real estate assets, including shares in real estate companies not related to the owner’s professional activity.
- The IFI retains key features of the previous wealth tax, with the same threshold of €1.3 million, a tax rate ranging from 0.5% to 1.5%, and similar reporting requirements.
- The tax base includes real estate owned directly by individuals, as well as shares in companies (regardless of legal structure or location), based on the portion of their value tied to real estate assets or property rights. Movable assets, such as company shares not linked to real estate and other financial assets, are excluded.
- There are specific, complex rules regarding debt deductions, particularly where deductions are capped or limited if debts exceed 60% of the real estate value, and if the property is worth more than €5 million.
Other
Other ongoing taxes (rates vary depending on the municipality where the property is located):
- Taxe foncière: Property land tax due by the owner annually
- Taxe d’habitation: Due by the occupant of the property annually
CFE (Contribution Foncière des Entreprises)
Cost: XXX
This is an extra tax applicable when the property is rented out as furnished. It is calculated based on the property’s cadastral value, which refers to its specific location and boundaries on a map. The amount of the CFE (Cotisation Foncière des Entreprises) varies depending on the size of the business and the property’s registration location.
Selling, Gifting & Inheritance
Capital Gains Tax
Cost: 36.2%
- General Rate: Capital gains are taxed at a rate of 36.2% for both resident and non-resident individual sellers. This comprises 19% income tax and 17.2% social contributions. However, since January 2019, the social contribution portion may not apply fully in certain situations (see details below).
- Capital gains from French real estate or from shares in real estate companies primarily holding French real estate are generally taxed in France in accordance with international tax treaties.
- For capital gains exceeding €50,000 realized by individuals, an additional tax is imposed, ranging from 2% to 6% depending on the amount of the capital gains.
Reductions and Exemptions on Capital Gains:
- As of January 1, 2019, individuals can benefit from an exemption on capital gains from the sale of their principal residence if they sell their former home by December 31 of the year following their move outside of France. This applies to owners who have been tax residents in France and are selling their residence due to a permanent relocation to an EU country or a country with a tax treaty. Additionally, a specific exemption of €150,000 on capital gains applies if the seller has been a French tax resident for at least two years at any point before the sale, and the sale occurs within ten years of their departure from France.
- Capital gains tax may be reduced if the property has been owned for at least five years.
- Full exemption is granted after 22 years of ownership for income tax purposes and after 30 years for social contributions. A full exemption also applies when selling the property if it is the principal residence, though this may not apply to non-residents.
- Following the 2019 French finance bill, social contributions will not apply fully to individuals (both residents and non-residents) who are already paying social contributions in another European Economic Area (EEA) state, which reduces the rate to 25%. This exemption is limited to EEA countries and does not include contributions in countries like the US. However, the same finance bill introduced a new social levy of 7.5%, replacing the previous social contributions of 17.2%, resulting in a combined rate of 26.5%.
Gift or Inheritance Tax
Cost: X%
In France, gift and inheritance tax is typically applicable under French tax law and/or relevant tax treaties. The tax rate depends on the value of the inheritance or gift and the relationship between the heirs or recipients and the deceased or donors.
Conclusion
When purchasing property in France, buyers should anticipate additional costs amounting to approximately 8% to 10% of the property’s value.
These costs encompass taxes, registration fees, and other charges. For example, purchasing a property valued at €250,000 that is less than five years old would incur around €1,787.50 in stamp duty and about €50,000 in notary fees, along with various other expenses.
For properties older than five years, stamp duty is typically 5.8%, and notary fees range from 6% to 8%.
