France Investment Tax Planning

Tax on Rental Income (Revenue Fonciere)

For furnished properties, a deduction of a flat 72% is allowed for expenses on incomes up to approximately 76,000 euros and the remainder is taxed at 25%. For rental incomes above 76,000 euros, your tax liability will be calculated according to your actual rental earnings.

For unfurnished properties, a flat deduction of 60% is allowed for income of up to 15,000 euros and the remainder is also taxed at 25%. For rental income above this level, again your liability will be calculated in line with your actual rental income.

As a landlord of furnished property, you are not subject to capital gains tax after 5 years of ownership.

Capital Gains Tax (Impot Sur le Plus-Values)

French capital gains taxes are generally lower than those in the UK, particularly if you are considering a purchase that you intend to keep for at least two years. It is therefore important to calculate your capital gains tax into any off-plan flip or other short-term investments that you will hold for less than two years.

EU residents must pay tax levied at 16% unless you have owned your property for more than 2 years. For property owned for a period of less than 2 years, tax is chargeable at approximately 40% (2006).

You are entitled to a deduction of 10% on capital gains tax if you have held your property for 5 years or more and after 15 years of ownership, you are exempt from capital gains tax altogether.

VAT (Taxe a la Valeur Ajoutee - TVA)

TVA is charged at a higher rate and on more items than in the UK. Currently TVA stands at a rate of 19.6%.

Inheritance/Wealth Tax (Droits de Succession - IHT)

This tax is charged on a complex sliding scale on assets over €76,000. Unlike in the UK, your spouse and close relatives are not exempt from IHT and could pay rates of up to 40%. It is also important to note that if your property is left to an unmarried partner or a friend, the IHT rate goes up to 60% with a tax-free allowance of a mere 1,500 euros.

In order to avoid such high rates of inheritance tax, it is important to speak to a specialist tax advisor who will employ one of two methods: hold your property “en tontine”, a legalized form of joint ownership, or register it through a UK or French company, in accordance with your particular circumstances.

Stamp Duty

Stamp Duty is charged at 6% and is levied in accordance with the value of your property.

Municipal/Local Taxes

Taxe Fonciere is a property tax that consists of taxes for the land and the building. The amount paid varies enormously according to location.

Taxe d’Habitation is similar to the UK’s Council Tax and is a residential tax payable on January 1st each year by the person living in your property. You will be liable for this tax in addition to the Taxe Fonciere if you live in your property as a principal residence.

Taxe Assimilee is charged in areas such as busy holiday resorts where local authorities have to spend more on maintenance and upkeep of public facilities.