You are considering buying a property in France. Whether it is the purchase of a second home or a real estate investment, what are the taxes and tax returns to which you will be subject?
Registration fees or notary fees
The total fees and taxes payable will depend on the type of property you purchase
In the case of the purchase of an old property, the total transfer of ownership costs and taxes payable for the purchase of an existing property is between 7% and 10% of the purchase price, excluding real estate agency fees. The amount of registration fees included is 5.80% of the purchase price and in some departments 5.09%.
In the case of the purchase of a property on plan (VEFA) or a property less than 5 years old by a professional, you will pay about 2% transfer fees and registration fees, plus VAT at the rate of 20% on the purchase price, excluding real estate agency fees. The amount of registration fees included is 0.7% of the purchase price.
These fees and taxes are payable at the time of acquisition to the notary in charge of the sale.
Although these fees and taxes are often referred to as “notary fees”, in fact, the actual notary fees (emoluments) are only about 1%. The rest is made up of registration fees and disbursements.
Even if you are a non-resident tax payer, if you receive income from a French source, such as rent, for example, you must declare this income and file a tax return in France. There is no reporting threshold, any income must be reported even if it is not taxable.
To determine your tax liability, the French tax authorities will first determine your total income, called your total gross income.
They will then make certain adjustments to obtain your net taxable income, called taxable income.
Your tax liability will then be calculated gradually, depending on the composition of your household and the level of your income.
Non-residents are subject to a flat rate of 20% or 30% (2019 on 2018 income) on net taxable income in France.
The declaration is made from April and the tax notice is received at the end of the summer of the current year.
If you own a property in France, you will be subject to two different local taxes: the housing tax and the property tax
The housing tax
The housing tax is an annual tax whose owner is the occupant of the property on January 1st of the year concerned.
Even if your property is your second home and you do not physically occupy it on January 1, you are liable for this tax.
A new tax rebate on the housing tax of your main residence has been introduced as from the taxes established for 2018, second homes and non-residents are not concerned.
If you rent this property annually, the person liable for payment is the tenant.
The tax rate is determined by each municipality and can vary considerably. The calculation method is theoretically based on the rental value, but since the values have not been updated since the 1970s, the amount may no longer be related to the actual rent.
The amount of the housing tax, therefore, depends on the decision of each municipality and the size of the state of the property of which you are the occupant.
If the property is unoccupied, the housing tax is not due. To be considered unoccupied, the property must not be “inhabitable”, i.e., for example, it must not contain any furniture.
In this case, in some cities with more than 50,000 inhabitants, the tax on vacant housing (TLV) is due to a dwelling that has been empty for at least one year.
If you own a television set in this secondary residence, you will also be liable for the audiovisual fee, which amounted to 139 euros in 2019. This tax is payable with the housing tax.
The tax notice will be sent to you in the third quarter of the tax year. The administration will send it to you at the address mentioned in your title deed unless otherwise indicated by you.
The property tax
This is an annual tax for which the person liable is the owner of the property, whether or not he occupies the property he holds.
As for the housing tax, the tax base is the rental value, which may have no relation to the actual rent.
It is interesting to ask your seller, real estate agent or notary for a copy of the property tax notice so that you can estimate the amount.
If you buy a property during the year, the seller is still required to pay the tax for the current year, but it is customary for there to be an agreement with the former owner regarding the sharing of this tax.
New constructions or major improvements must be reported to the tax authorities in order to reassess the property tax.
The Property Tax Notice is received in the third quarter of the year.
At the same time as the property tax is collected, the household waste collection tax is collected to finance collection by the municipality service. If you rent the property, you have the right to recover the tax from the tenant.
Tax on real estate wealth (IFI)
If you do not live in France, only real estate located in France is taken into account, subject to the provisions of any tax treaty between your country of origin and France.
The IFI is an annual tax, and the applicable date for asset valuation and household determination is January 1 of each year.
The taxable assets under the IFI are all real estate and investments in real estate.
More specifically, they understand:
- The main residence, as well as second homes, land and rental buildings;
- Shares held in real estate partnerships (SCIs);
- Shares held in real estate funds, such as SCPIs
- Shares held in companies up to the value of their assets, in which you hold at least 10% of the share capital.
- Debts are deductible, provided they existed on January 1 of the tax year, are borne by the owner and relate to taxable property.
You are liable for this tax if the net value of your property in France exceeds 1,300,000 euros.
The tax rate varies between 0.50% and 1.50% of the declared value of the goods.
It is up to you to decide whether or not to declare your assets to the IFI. However, if the tax authorities decide that you are subject to wealth tax, they have the right to collect the arrears with penalties over the previous ten years.
The tax return date is normally the end of May or beginning of June of each year.
Cabinet Roche & Cie, Chartered Accountant in Lyon
Specialist in real estate and non-resident taxation