France can be a wonderfully rewarding part of the world in which to own a property; however, whether you have already purchased a property here or are contemplating doing so, you will need to be well-informed on your tax obligations.
Here, then, are the essentials of what prospective movers or those who have already relocated will need to know.
What do people need to consider when moving to France?
Whether you will be buying a property in France in order to live there permanently, or instead with a view to using it as a holiday home, you should take the time to educate yourself on, and prepare for, the tax implications of your acquisition.
You should particularly bear in mind that if the property is to be a second home or investment property, it won’t be classed as your main private residence, so you can expect not to benefit from the main home reliefs.
If you are yet to actually purchase a property in France, we would advise you to look into the various ownership options, given the potential impact on your heirs’ succession tax liabilities, and those to whom you will be able to leave your property (‘forced heirship’ rules apply in France). So, we suggest you carefully think about what the best way would be to own a French property in accordance with the requirements of your family.
What taxes do you need to consider and why?
French tax residence
Bear in mind that if you enter France with a plan to live there indefinitely, you will become a tax resident the day after you arrive in the country. If you intend to spend about half the year in your holiday home in France, you will need to scrutinise the tax residence rules so that you pay your taxes in the right place.
You only need to satisfy one of the four below conditions in order to be deemed tax resident in France:
- France being your principal home or residence
- France being your main place of abode, which typically means spending more than 183 days in the country during a calendar year
- Your principal activity, or occupation, being in France, or your main income arising there
- The majority of your substantial assets being situated in France
Of course, the above can be altered by the presence of an international tax treaty!
If you are a tax resident in the country as a result of fulfilling one of the aforementioned criteria, you will be liable to pay tax on worldwide income, gains and real estate wealth. There won’t be any choice in the matter; according to the rules, you will either be a French tax resident, or not a French tax resident.
In the event that you are a non-resident of France as far as taxes are concerned, you will only need to pay French tax on income sourced from France, as well as on assets located in France.
Property Wealth tax in France
There is an annual wealth tax imposed on property in France, known as Impôt sur la Fortune Immobilière (IFI). It only applies to households that have total taxable property assets with a value of more than €1.3 million. Beyond the €800,000 tax-free allowance, rates begin at 0.5%, and progressively increase to 1.5%.
As a resident of France, you will be taxed on the amount that your household’s global real estate assets are worth as of 1st January each year. All residences will be included in this, also encompassing holiday homes and investment properties, whether they are directly or indirectly owned. However, it is possible to lower a main home’s value by 30% for wealth tax purposes.
If, meanwhile, you are a non-resident of France, you will be liable on real estate in the country.
Capital gains tax
Other than your principal home, as a resident of France, you will be expected to pay capital gains tax on worldwide property at 19%, plus surtaxes, as well as social charges.
There is a progressive rise in the surtaxes, from 2% for gains exceeding €50,000, to 6% for gains of more than €260,000, equating to a maximum total rate of 42.2%.
For the duration of property ownership, capital gains tax decreases, beginning in the sixth year, and with full exemption after 22 years. There is also a reduction in social charges after five years, although you will need to have owned the property for 30 years before you will be entirely exempt from paying them.
If you are a resident, your main home in France will not be subject to capital gains tax, as long as the property is your habitual and actual residence at the time the sale occurs. Satisfying certain conditions can allow for a breathing space of 12 months.
Income tax
In the event that you choose to rent out your property in France, you can expect your net income to be taxed at the income tax scale rates. As of 2021, this began at 11% for income exceeding €10,084, and continued up to 45% in the case of income amounting to more than €158,122. In addition to this, social charges of 17.2% apply.
The situation is the same for residents of France who rent out properties in other countries.
With various tax rules applying to rental homes in France, it is crucial that you educate yourself on those to which you will be subject, including by getting in touch with an accountant.
Succession tax
Naturally, one hopes that succession tax on the property you buy in France will only become due many, many years into the future. However, it is something you need to account for at the time you acquire a French property.
Inheritance tax in France isn’t charged on the estate, but instead on each beneficiary individually. However, the exact rates and allowances depend on each given beneficiary’s relationship to the person who bought the property.
Local property taxes
Whether you are a resident or non-resident of France, you will be required to pay two types of local french property tax: taxe d’habitation and taxe foncière.
The first of those, taxe d’habitation, is actually in the process of being phased out, ahead of an anticipated complete abolition in 2023. In the meantime, this tax needs to be paid by a person who owns or has use of a residential property in France. To determine an amount to be paid, a notional rental value for the property is used, with this being multiplied by the tax rate fixed in the locality.
Taxe foncière, meanwhile, is payable by the owner of the property as of 1st January. There are two parts to this tax: tax on the building based on 50% of the notional rental value, and tax on the land, which is determined as 20% of the rental value, multiplied by the tax rate fixed in the locality.
In the case of both these taxes, exceptions and deductions can apply.
What should people do now?
The french tax system can be more complicated than you might initially realise, so if you do intend to purchase a property to enable a relocation here, it is crucial to request advice from a professional.
Even if you choose to stay a UK resident, there will be a need for you to comply with the UK-France double taxation treaty, so you should take the time to be sure about exactly where you will need to declare the income and gains and pay tax. You should also do this if you become resident in France and earn UK income.
For a more detailed discussion of how we can assist you as a financial advice company here at Kentingtons, please do not hesitate to contact us.