Filed under : For Sellers

French Property Tax Update 2014

French Property Tax has changed once again - here's what you need to know:

French homeowner’s should be aware of the following taxes when purchasing property, even if they are not French residents. Figures must be taken as a general indication only and Flat Hunter strongly encourages you to seek expert legal or accounting advice based on your individual situation and project. We are happy to connect you with trusted experts at your request.

French Property owner’s tax (“taxe fonciere”) – this annual tax is paid by the owner of the property based on the size and location of the property. As Paris is a very densely populated area, the tax has remained quite low over the years. The agent or seller will disclose this tax as part of the property information. For example, for a 75 m² apartment in central Paris, it can be 600 to 800 euros.

French Property user’s tax (“taxe d’habitation”) – this annual tax is paid by the user of the property so if you rent your property long term, it can be passed on to the renter. It is based on the size and the location of the property but also on the revenues of the occupant to some effect so the seller cannot disclose what it will be for the buyer. It is often very close to the amount of the property owner tax.
Revenue tax (“IR” or “impot sur le revenu”) – this tax would be due on any rental income collected in France for renting the apartment. The taxable rental revenue can be reduced by interest paid on a French mortgage, value improving renovations and management fees for example. Other deductions may apply based on the tax status you choose. The tax rate depends on your global revenue but should be less than 25% in most cases.
Since August, 2012, the social contributions apply on the rental income so that an additional tax rate applies on the tax rate based on the rental income (tax rate + 15,5%)

Wealth tax in France (“ISF” or “impot de solidarité sur la fortune”) – this tax is calculated on the total annual market value of all your real estate assets, cash, investments and other valuable items such as fine art owned in France less any French loans outstanding on the property. Therefore taking a French mortgage can help you reduce or avoid this tax. Paris apartment owners - be sure to check the value of your Paris real estate annually to know if this applies to you.

As an indication, the current wealth tax rates on your total net asset value are:

Total net asset value Rate (%)
Until 800.000 € - 0,00%
From 800.000 € to 1.300.000 € - 0,50%
From 1.300.000 € to 2.570.000 € - 0,70%
From 2.570.000 € to 5.000.000 € - 1,00%
From 5.000.000 € to 10.000.000 € - 1,25%
Superior to 10.000.000 € - 1,50%

For French residents, the calculation is based on their worldwide assets.

For non-residents, the calculation is based on assets located in France, including:
- furniture and movable property located in France;
- real estate assets held directly or through a real estate company (such as an SCI);
- net value of shares of a company located in France (the value of the credit account in favor of the shareholder, in French the "compte courant d’associés”);
- net value of shares of a company located in another country where the majority of the real estate assets are located in France.

Capital gains tax – for a property that is not your main residence, capital gains tax after a sale starts at approximately 34.50% for a French tax resident and at 48.83% (33.33% + 15.5%) for a non-European Union tax resident (the rate is 34.50% - 19% + 15.5% - for a European citizen residing in a European Union country) and is progressively reduced each year after the 6th first years to arrive at 0% after 30 years. Therefore if you hold your property long enough, you won’t pay any capital gains tax at sale. There is no capital gains tax on your primary residence.
For all types of properties (except building land), the capital gain is totally exempt:
- from the CGT part of the tax: after 22 years of ownership,
- from the social charges part of the tax: after 30 years of ownership
• For building land: Exempt after 30 years.

Temporary 25% Discount on the Capital Gains Tax
Applicable: to property sales signed between 01/09/13 and 31/08/2014,
• EXCEPT sales:
- of building land,
- of shares of companies whose capital consists mainly of real estate,
- to a spouse, PACS/civil partner, live-in partner, ascendant, descendant
- to a company owned by the seller and/or the persons listed above.
• to the net capital gain after deducting the allowances for length of ownership (CGT + social charges),
• for calculating the tax basis of the Supplementary Tax (article 1609 9 G of the French Tax Code) (calculated on the CGT part of the tax).

Tax on property owned by a foreign company or the “3% taxe” – if the property is purchased by a non French company, the annual value of the property will be taxed at 3% each year unless you file a report to clearly disclose all the shareholders of the company. This also applies if a non-French company creates and holds shares in a French company to buy the French property. Definitely seek the advice of a French accountant if you plan to purchase this way.

French Housing Market Outlook 2014

Paris apartment prices soften, but not always on the apartments you want to buy. Overall, prices are on a slight downward trend.

Paris apartment prices
In January 2014, there was a slight increase in prices after 6 months of consecutive price softening however this is mainly regarded as a seasonal effect and the outlook for further price reduction in 2014 continues. A 3 to 5% average decrease is often cited among the agents we speak with. Unfortunately, this must be taken with a grain of salt. These figures reflect the average of the overall market – not the subset of the French properties most of our clients would like to buy (great light, nice entry, logical layout, upper floor, good location, etc.) The apartments with “good bones” have seen only a slight reduction if any. There is a bit more room for negotiation in Paris real estate over 1.5 million euros.

French real estate prices
The property market in the rest of France is also trending towards a slight average decrease however ups and downs vary by locale. In Q3 of 2013 statistics measured, houses lost value more than apartments (-2.3% for houses vs -1% for apartments annually.)

What is the impact of foreign buyers in France?
Interestingly enough, almost 70% of foreign buyers already live in France and more than 30% of non-resident buyers are French expatriates. According the latest statistics from the French Notaires report, non-resident foreigners accounted for less than 2% of French property buyers over the 2009-2013 period: 2% in the French provinces and 1% in the greater Paris region, although their proportion increased to 3% in Paris itself.

In the greater Paris region, the Italians are still the largest group of Paris apartment buyers at 25%. The next largest group is the United States with 5%. The British are very strong French home buyers in northwestern France. If you look at the pre subprime - Lehman Brothers crisis period (2002-2007), British French property buyers have sharply dwindled while the number of Belgian French home buyers has increased most regions. The Germans are still curiously absent from the French property market.

What will influence the French housing market in 2014 prices?
1) Credit availability

French banks have made it clear that they are less interested in lending French mortgages this year and very interested in opening investment accounts. This is mainly driven by a need for profitability (French mortgages are often loss leader products.) The second reason is increased capital requirements for banks post crisis. Banks in France are now required to have more capital reserves and therefore have less money to lend. Less lending can lead to French property price softening.

2) Tax on property transactions
The transaction tax (stamp duty) on property sales has increased this year up to 0.7%. This is not expected to have a major impact as the effect is market wide and relatively small.

3) Taxation of capital gains in 2014
In the wake of the dramatic change to the rule to exonerate capital gains on second homes held more than 15 years to 30, then the addition of social charges for non-resident sellers, the French government has come back with a special deal to reduce this tax by 25% for transactions completed by August 31, 2014. This is expected to create a mini rush of sales and allow a bit more room for price negotiation as the deadline draws near.

France’s Economy is Looking Up

The central Bank of France anticipates that the country’s economy will see growth of 0.8% during the second quarter, doubling the rate from the first part of 2011. French consumer spending also increased, as did hiring. Bloomberg also reports that the number of jobless surveys completed reduced.

Exchange Rate Forecast

The pound has slipped slightly against the dollar, following a revised forecast of economic growth, which put the country slightly below where it had been previously anticipated. At the same time, the UK’s inflation expectation has been lowered, thus alleviating pressure to increase the interest rate. However, the pound rose marginally on the euro.
As the debt crisis in Spain is continuing to be resolved with sovereign debt being auctioned, so that the debt problems will be restricted, it is likely that the euro will continue to strengthen in the coming months. The euro has climbed by 7% against the dollar this year alone.
This has impacted many potential French real estate buyers’ budget and thus increased demand for higher French mortgages to minimise exchange rate loss.

Outlook for European Interest and Inflation Rates

Rising inflation rates across Europe, and notably in France, with a 2.3% increase in February alone, are encouraging the European Central Bank (ECB) to increase the interest rates in order to counter these unanticipated levels of inflation. The bank shifted its year-long and its 2012 overall inflation projections.

The interest rate increases are aimed to signal to investors that there is a focus on controlling inflation throughout the Eurozone. The ECB is tightening economic policy as the economy rebuilds and expands. The ECB Governing Council members expressed that monetary policy as it stands is too “accommodative”, thus necessitating the higher interest rates. Further, the rising interest rates are an indication that the economy is strengthening to be able to withstand the shifts in investment that may occur as a result of the changes. Additionally, the increased interest rates are an emphasis on the bank’s credibility.

The problem of balancing stronger economies, like Germany and France, which recovered the most quickly from the financial crisis, with the countries that have required aid in the form of foreign loans or World Bank bailouts remains a challenge for the ECB.

The IMF last week increased its growth prediction for the euro region to 1.6% in 2011 and 1.8% in 2012. The ECB is also trying to emphasize that while the euro’s exchange rate dipped slightly in mid-April with announcements over Greece’s bond rankings they are confident that the sovereign debt crisis, in terms of those countries requiring bailouts, is a restricted situation.

The primary policy goal of the ECB this year is inflation control. The ECB has not explicitly indicated whether its Euribor rate will indeed increase to 1.75%, a further increase of 0.5%, but there are indications that such increases are not out of the question. There is an expected raise in the interest rate by 0.25% each quarter through the end of 2012 so that the interest rate at that juncture would be 2.75%.

According to Business Week, investors in the European market can expect that the bank will be beginning to decrease its supply of liquidity to banks and to perhaps cut down on its bond purchase program as these two policies are not in line with the policies towards lessening dependency on the ECB by member countries.


» December, 2015: Democrats work to stop FATCA blowback

» November, 2015: Buying a Piece of France - Tax and Legal Need to Know, November 2015

» April, 2015: Paris Real Estate Outlook 2015

» October, 2014: Breaking News on Euro USD

» October, 2014: Inheritance law in France : Major change for you in 2015

» March, 2014: France Home Finance on TV

» February, 2014: French Property Tax Update 2014

» February, 2014: French Housing Market 2014

» April, 2011: France’s Economy is Looking Up

» April, 2011: Exchange Rate Forecast

» April, 2011: Outlook for European Inflation

» April, 2011: Why France is still Drawing Expats

» March, 2011: Euro Exchange Rate Outlook

» March, 2011: France World Tourism Leader

» March, 2011: Update on French Mortgages

» March, 2011: Rising French Property Values

» February, 2011: Role of the Notaire

» February, 2011: European Economic Outlook for 2011

» February, 2011: Key French Tax Deadlines for 2011

» January, 2011: The Complete Mortgage Process

» November, 2010: French Property Taxes

» November, 2010: The Benefits of Hiring a Mortgage Broker

» October, 2010: Qualifying for a French Mortgage

» September, 2010: Primary Costs Involved With a French Mortgage

» September, 2010: Fixed or Variable Mortgage Rate?

» August, 2010: French Leasebacks

» August, 2010: Compulsory French Life Insurance

» July, 2010: Commercial Real Estate Sector Must Meet Sustainable Criteria

» July, 2010: Major Decrease in U.S. Property Sales

» June, 2010: Global Real Estate Recovery

» June, 2010: Second Homes for Wealthy French Real Estate Investors

» May, 2010: Increase in Confidence of French Real Estate Market

» December, 2009: Key French tax deadlines for 2010

» October, 2009: France - the most visited country in the world in 2008

» August, 2009: Visit France Home Finance in our new location