Taxes in France

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Before I start, I must add a disclaimer by saying that I am not an expert on this subject, that information has come from other sites, who have been credited, and you are advised to get Professional advice .

Taxes anywhere are complicated, so here are a selection of simple paragraphs pertinent to Property in France.

France has much the same taxes (e.g. income tax, capital gains tax, property tax) as other countries. However, there are three main differences between France and many other countries:

  • In most English-speaking countries (e.g. UK, USA, Canada) income tax and social taxes are calculated on an individual basis. In France, they are calculated on a family basis. This is explained in more detail below, but in simple terms the income for all family members is added up and then divided by the number of people in the family.
  • Tax rates in France are different and generally higher than most other countries.
  • There are a number of tax loopholes and exemptions specific to France.
Tax Residency

If you are resident in France, you must pay French taxes on your worldwide income. However, if you are not resident in France, you pay French taxes only on income earned in France. This is much the same as UK tax law (i.e. if you are resident in the UK you must pay UK taxes on your worldwide income whereas if you are not resident in the UK you pay UK taxes only on UK income).
If you are resident in France from a tax perspective, you are referred to as 'tax resident in France'. In general, French tax law considers you to be 'tax resident' if you meet any of the following criteria:
  • your principal residence is in France, or
  • you carry out a professional activity in France (unless you can prove that this activity is carried out therein incidentally), or
  • your centre of economic interest lies in France.
There are a number of specific tests associated with these general principles. For example, if you spend 183 days or more in France in a calendar year, then your principle residence is deemed to be in France. These specific tests are used when it is unclear which country you are 'tax resident' in. For example, if you spend half of your time in France and half of your time in the UK, it is possible that both countries will claim you as tax resident, in which case the specific tests will be used to determine which of the two countries you are actually tax resident in. If your situation is unclear, you may wish to take professional advice on this matter.
When determining taxes, it is tax residency which is important rather than citizenship (with a few special exceptions, such as diplomats). Consequently, if you live and work in France you will pay the same taxes as any Frenchman (or woman), regardless of your citizenship.

Double Taxation

If you earn money in multiple countries, you will need to pay tax in multiple countries. To avoid the situation where you are taxed twice, many countries (including UK and France) have a 'double taxation treaty'. This can best be explained by two examples:
  • Tax resident in UK, earn money in both UK and France. This situation could arise if you live and work in the UK but have a rental property in France. In this case, you would have to pay tax in France on the rental income earned in France. You would also have to tax in the UK on both UK income and on your France income. However, to avoid being taxed twice on the same income, you would receive a tax credit in the UK equal to the tax you paid in France.
  • Tax resident in France, earn money in both UK and France. This situation could arise if you live in France but have an investment or other income in the UK. In this case you would have to pay tax in the UK on the income earned in the UK. You would also have to pay tax in France on both the UK income and the France income. However, to avoid being taxed twice on the same income, you would receive a tax credit in France equal to the tax you paid in the UK.
If you have income from countries other than the UK and France,  you should check whether France has a 'double taxation treaty' with these other countries. For UK assets and income, you are protected as there is a double taxation treaty between the UK and France. However, for countries where such treaties are not in place, you can be taxed in both countries for the same income.  This can literally double (or more) your tax bill. Furthermore, you may be subject to this double taxation even if you are non-resident in France and you can even be taxed on the letting value of your French property even if you are net letting it (in other words, you can be be required to pay substantial income tax even if you have no income). Consequently, it is of the utmost importance that you confirm your double taxation situation and take appropriate professional advice if your income and assets are not protected by double taxation treaties.

Types of Tax

Taxe Foncières, Taxe d'Habitation

Council tax in the UK is based on the value of the property and the number of people living in it. In France, this is broken down into two separate taxes: a property tax (taxe foncières) and a residence tax (taxe d'habitation). The owner of the property is liable for the taxe foncières, while the occupier is liable for the taxe d'habitation; if you are an owner-occupier then you are liable for both taxes.
As in the UK, property tax varies from region to region, so identical properties can have very different levels of property tax depending on where they are located. Likewise, a city property will be taxed more than the equivalent property in a village or the countryside.
Residence tax depends on the number of people living in the house or apartment. Like property tax, it varies from one area to another. People over 60 are eligible for exemptions.
In the case of a house being sold, the person owning the house as of 1st January is liable for the full year's taxe d'habitation. However, if a house is purchased partway through the year, the taxe foncières is often split between the buyer and the seller. If you do not confirm this (in writing) at the time of the initial contract (Compromis de Vente), you may be required at the time of the final contract (Acte de Vente) to refund to the vendor's the taxe foncières they've already paid for the balance of the year.

Capital Gains Tax

Profits on the sale of assets (e.g. property or equities) are subject to capital gains tax. However, certain items are exempt from this tax. For example, if you sell your home in France (assuming it is your principal residence) you do not need to pay any tax on the profit. Furthermore, even for taxable items, you do not need to pay tax if your profit is less than a given amount.
For items which are taxed, the profit is not merely the difference between the selling price and the purchase price, as there are a number of allowances, such as:
  • costs and expenses associated with the purchase,
  • costs and expenses associated with the sale,
  • certain expenses during the period of ownership,
  • additional discounts associated with property. For example, after five years of property ownership, there is a 10% allowance for each subsequent year of ownership (e.g. after 10 years ownership tax is reduced by 50%; after 15 years ownership any profit on sale is tax free).

For calculation of this tax, there are two main types of assets. The first type is property (e.g. a house, an apartment, or land) and the second is securities (e.g. shares). For both of these asset types, the tax rate also depends on whether you are resident in France or non-resident. This results in four different tax rates for capital gains by individuals, as follows:
  • France residents, capital gains on property. This is taxed as income. In other words, it is added to your other types of income and then income tax is calculated on it. As discussed above, some items (e.g. sale of your principal residence) are exempt from this tax.
  • Non-residents, capital gains on property. If you resident in another EU country (e.g. the UK), the profit is taxed at a flat rate of 16%, plus social taxes (see CSG and CDRS below). If you are not a resident of a EU country, the tax is one third of the profit (i.e. taxed at a flat rate of 33%).
  • France residents, capital gains on securities. Profits are taxed at a flat rate of 16%, plus the social taxes (see CSG and CDRS below).
  • Non-residents, capital gains on securities. In general this is tax free in France (there are some exceptions, such as in the case of a shareholding of 25% or more in a private limited company). However, the county in which you are resident may tax you on this profit.
As of 2004, there have been a number of changes to the way in which capital gains is calculated. Of particular note, one can no longer deduct expenses for materials unless there is a professional invoice. Consequently, any materials used in DIY work may not be deductible. However, you may still want to keep your material invoices anyways, as it is not impossible that this tax change could be reversed again at some future point.

Inheritance Tax

Inheritance tax is one of the major considerations when moving to France and needs careful attention prior to the purchase of a property. Factors to consider include:
  • Unlike the UK, the threshold for inheritance tax is very low. Therefore, even a small inheritance is subject to inheritance tax.
  • Inheritance tax rates are very high (up to 60%) so it is quite possible for half of an inheritance to be taken in taxes.
  • Inheritance law in France limits your choice in terms of who you can leave your estate to.
  • Not only your French property, but all of your assets worldwide can be subject to French inheritance law and French inheritance tax.
  • French inheritance law is moderately complicated. For example, the level of tax is affected by:
  • Who is inheriting. Money left to close relations is taxed at a different rate than money left to distant relations. Disabled beneficiaries unable to earn a living receive an additional allowance against the tax.
  • What is being inherited. Property can be taxed at a different rate than money. Life insurance policies may also be exempt.
  • How it is being inherited. If you try to avoid inheritance tax by giving away your assets before you die, the beneficiaries can be taxed. This is called Gift Tax and is treated in much the same way as inheritance tax, although it can be reduced based on the age of the donor.
However, the most important point of all is that all of these issues (high taxation, taxation on worldwide assets, restrictions on who can inherit your estate) can be largely avoided by taking the appropriate actions at the appropriate times.
Inheritance tax in France is due if:
  • Donor (the deceased) is resident in France. In this case French inheritance taxes are due on all assets, both inside and outside France.
  • Donor is not resident in France. Only the assets within France are subject to inheritance tax.
  • The heir is resident in France. All inherited assets are subject to French inheritance taxes, even if the donor is not resident in France. However, this is applicable only when the heir has been tax resident in France for six out of the ten years prior to receiving the inheritance.
Between spouses there is a tax free allowance of €76,000. Amounts in excess of this are taxed according to the following table:


Taxable part (i.e. after allowances)

 Tax rate
Up to €7,600
5%
€7,601 to €15,000
10%
€15,001 to €30,000
15%
€30,001 to €520,000
20%
€520,001 to €850,000
30%
€850,001 to €1,700,000
35%
over €1,700,000
40%

For parents or children, there is a tax free allowance of €46,000. Amounts in excess of this are taxed according to the following table:



Taxable part (i.e. after allowances)

 Tax rate
Up to €7,600
5%
€7,601 to €11,400
10%
€11,401 to €15,000
15%
€15,001 to €520,000
20%
€520,001 to €850,000
30%
€850,001 to €1,700,000
35%
over €1,700,000
40%


For more distant relations, the tax allowances are smaller and the tax rates are higher. Between brothers and sisters that tax rate is 35% on the first €23,000 (after allowances) and 45% on the remainder. For other relatives (up to the fourth degree) the tax rate is 55% (after allowances). For other cases the rate is 60% (after allowances). Note that in the event of unmarried partners (unless there is a PACS) and in the event of step-children, this rate of 60% is applied.
Certain items (e.g. company securities, sole proprietorships) can have a tax exemption up to 50% of their value. Some items, such as life insurance (up to €152,000) that meet certain criteria, are 100% exempt.

( Note: This information was collated in 2008 - there have been some changes since then. Thanks to French Property,Services and Information Ltd for this information)

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