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- Land Tax (Taxe Foncière)
This tax is paid yearly for each property. In the case of resales, the payments are expected the first year. In the case of new property (up to five years old) the tax is deferred for the first 2 years. - City Tax (Taxe d’Habitation)
This tax is paid by the occupant of the property, regardless of whether he is the owner or not. Therefore, in the case of a rental property, the tenant pays the City Tax. In the case of Leaseback, this is covered by the management company.
Other tax implications you should consider:
- Annual Capital Tax
It is not advisable to use an offshore company to purchase a property in France because in most cases they are liable to pay a 3% annual capital tax based on the market value of the property owned (depending on the company’s place of incorporation, mind, and management). However, if you choose to purchase the property either in your own name, through a French-resident company, or through a company resident in a treaty country (subject to certain conditions), this 3 % tax will not apply. - Wealth Tax
This tax will be payable if the net value of your French property, or the shares you hold in the company that purchased the property, exceed a certain figure (€716,543 as of January 1999, net of any mortgage). - Inheritance Tax
Subject to small reliefs, French inheritance tax will apply at rates from 5% to 6% (depending on your relationship with the transferee or beneficiary) upon transmission of the French property or shares in the property owning company.
CALCULATING INHERITANCE TAX
| DIRECT FAMILY MEMBERS | SPOUSE | |||
| (parents and children) | ||||
| The first €46,000 of inheritance are tax free | The first €76,000 of inheritance are tax free | |||
| Up to €7,600 | 5% | Up to €7,600 | 5% | |
| €7,600 to €11,400 | 10% | €7,600 to €15,000 | 10% | |
| €11,401 to €15,000 | 15% | €15,001 to €30,000 | 15% | |
| €15,001 to €520,000 | 20% | €30,001 to €520,000 | 20% | |
| €520,001 to €850,000 | 30% | €520,001 to €850,000 | 30% | |
| €850,001 to €1,700,000 | 35% | €850,001 to €1,700,000 | 35% | |
| €1,700,001 and above | 40% | €1,700,001 and above | 40% |
We will take a classic example:
A married couple with two children owns a property together. The wife dies. The property is evaluated and is stated to have a value of €200,000 free of loan. This means there is a value of €100,000 to be inherited. Property use automatically reverts to the surviving spouse.
The ownership is divided as follows :
The surviving spouse keeps 50% of the total value as a partial owner. The other 50% is divided equally into thirds between the surviving spouse and two children, resulting in the following distribution of inheritance:
- Surviving Spouse: 50% + (33% of 50%) = 66.67% €133,333
- First Child: (33% of 50%) = 16.67% € 33,333
- Second Child: (33% of 50%) = 16.67% € 33,333
Taxes :
Taxes are now paid on this inheritance, calculated at :
- Surviving Spouse : (€100,000 x 33%) €33,333 tax apply only above €76,000, resulting in zero tax
- First Child : (€100,000 x 33%) €33,333 tax apply only above €46,000, resulting in zero tax
- Second Child : (€100,000 x 33%) €33,333 tax apply only above €46,000, resulting in zero tax
Upon the death of the second spouse :
Remember, the percentage of this spouse’s ownership was 66.67% of €200,000 = €133,333. This is now divided equally between the two surviving children. The calculations are as follows :
Ownership :
- Each child will receive 50% of €133,333 = €66,670
Taxes :
Each child will have to pay tax on their inherited share. Since the first €46,000 are not taxable (see table above), this leaves a remainder of €20,670 to be taxed. The tax paid by each child will be :
| Up to €7,600 | € 380 | |
| €7,600 to €11,400 | € 380 | |
| €11,401 to €15,000 | € 540 | |
| €15,001 to €520,000 | €1,134 | |
| Total inheritance tax: | €2,434 |
IMPORTANT: This projection is made as default in case no will have been given by any parties.
CALCULATING CAPITAL GAINS TAX
When selling your property, house, flat, or plot of land, you will have to pay a French tax of 15% of the difference between the sale price and the purchase price. It must be emphasized that your initial purchase will be modified to your advantage (that is to say, raised) in order to take into account possible expenses you have had, as well as inflation if you have owned this property for more than 2 years.
FAST FACTS:
- This tax is paid to French Inland Revenue when the bill of sale is registered.
- The "Plus-Value" (Capital Gain Tax) thus calculated, will be reduced by 5% for each year of ownership after the second year.
- There is a tax reduction of €1000 granted to all vendors, plus a reduction of €3500 per spouse, plus €1500 per child, for the sale of a first taxable second home.
Example: A family with 2 children.
| PURCHASE PRICE IN 1980 | €100,000 |
| COST OF IMPROVEMENTS IN 1983 | €10,000 |
| INTEREST ON LOAN | €500 |
| SALE PRICE IN 1989 | €300,000 |
* 10% maximum increase allowed
Calculate the Cost Price:
Purchase Price (€100000) + Cost of Improvements (€10000) = Cost Price (€110000)
Calculate Inflation for Year of Purchase:
Cost Price (€110000) + Coefficient for 1980 (1.78) = Inflation for Year of Purchase (€195800)
Calculate Inflation for Improvements:
Repairs (if you do the work yourself, multiply material price by three): €10000 x 3 = €30000
Repair Price (€30000) + Coefficient for 1983 (1.28) = Inflation on Improvements (€38400)
Determine Interest on Loans:
Interest paid on loan with no coefficient applied (€5000)
Calculate Gross Capital Gains: (Plus Value Brute)
| SALE PRICE | €300,000 |
| LESS INFLATION VALUE FOR YEAR OF PURCHASE | - €195,800 |
| LESS INFLATION VALUE FOR IMPROVEMENTS | - €38,400 |
| LESS INTEREST PAid ON LOANS | - €5,000 |
| EQUALS GROSS CAPITAL GAINS | = €60,800 |
Calculate Tax Allowance:
Determine 5% for each year of ownership, less the first two years and year of sale (7 years x 5% = 35%)
>> €60800 - 65% = €39520
Calculate Tax Reductions:
Vendor (€1000) + Spouse (€7000) + Child (€3000) = Total Tax Reduction (€11000)
>> €60800 - €11000 = € 28 520
Determine Capital Gains Tax:
Capital Gains Tax at a rate of 15% = €28 520
>> TOTAL TAX = €28520 x 15% = € 4 278
Determine Net Capital Gain:
>> €300000 - €100000 - €10000 - €5000 - €4 278 = €180 722
* PLEASE NOTE: The above information represents only a simplistic overview of the tax implications involved in acquiring French real estate. We suggest that you seek professional advice through the Notaire or Knightsbridge Investment Group. In terms of French Inheritance Tax, Notaire advice should be taken in order to optimize your legal status.
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