Taxes are a recurring ritual of the French government. Both local French and foreigners with second homes in France always grumble about the slow government and the ever-growing army of civil servants. But rest assured, the collection of taxes is well organized.
If you work in France, the tax system is mainly aimed at collecting as much as possible immediately. The social security system with benefits for the poor is solid good, but this has to be paid for by somebody. Indeed, by you. The working masses were surprised in 2019 with a new way of collecting tax: directly at the source.
Tax to pay for a foreign owner of a second home in France
If you work in France, the government collects your tax directly with access to your bank account. That sounds like a nice service but collecting the taxes from your bank account every month is ideal for the French government. That may sound like a nightmare to some, yet this system was implemented without any demonstration.
Instead of filing income taxes and paying all the taxes you owe for the previous year, in France, you are taxed at the source of the income in monthly payments. Income to which this applies, in addition to your salary, also includes pension income (such as pensions or annuities), relevant foreign income, leave (for example, due to illness or maternity) and rental income. If you live happily in your main house outside France, you have still control of your income tax and bank account.
Taxes on real estate and wealth in France
If you collect your income outside of France but buy or own a property in France, you will have to pay the taxe foncière (property tax) in France, even if you rent the property out. The bill for the Taxe Foncière comes in the last quarter of the year.
French property taxes: Taxe foncière
The amount is based on the estimated annual rental value of the property multiplied by a percentage determined by the municipality (ask at your local town hall for more information). You can pay the tax in instalments or in advance via monthly direct debit. The taxe fonciere usually also includes the Taxe d’Enlèvement des Ordures Ménagères (TEOM). Quite a mouthful, but it is the cost of collecting and processing garbage.
If you want to know exactly how much you have to pay in real estate taxes in which municipality, use this simulator. You choose your region, then the city and then you enter the surface area of your villa or apartment in France. It’s also a handy reality check for what you’re willing to pay in property taxes each year. If you are going to buy a house in France from abroad and you are thinking of 100m2 of living space, it will have more impact on the annual costs than a 2 bedroom apartment of 60m2. You can therefore check how much money that will save on an annual basis via this link: ‘How much property tax do I pay in France for my second home?‘
Habitation housing taxes 2022 on the second home
An election promise from President Macron that is being fulfilled is the abolition of the housing tax or ‘Taxe Habitation’. 80% of households will now benefit from the abolition of the housing tax on their main residence from 2020 onwards.
From 2021, the remaining 20% of households will be subject to a gradual reduction in the housing tax on the main residence until its definitive abolition in 2023. However, if you live abroad and have a second home in France, you must pay this tax. Owners of second homes are not exempt from housing tax. They then have to pay local tax for each of their homes: the main home if they are still liable in 2022 AND the second home.
The Taxe Habitation residential tax is based on the rental value of homes owed on all furnished properties assigned to residential accommodation according to Article 1407 of the CGI (General Tax Code), which means that any residential property is taxable. The basic rule is, therefore, one home = one housing tax, except in special cases of exemption.
The housing tax on second homes will remain due for all taxpayers, with:
The revaluation of the taxable base by 3.4% compared to 2021
The enforcement of the tax rate in 2019
If you want to see where and how much Taxe Habitation you pay, use this simulation meter ‘How much housing tax do I pay for my second home in France?‘
French wealth taxes aka IFI
If you buy real estate in France, you will have to deal with a wealth tax, also known as IFI. In 2018, France abolished the wealth tax on financial assets and replaced it with IFI (Impôt sur la Fortune Immobilière), which only applies to real estate.
The wealth tax levels are the following:
€800,000 to €1.3 million: 0.50%
€1.3 million to €2.57 million: 0.70%
€2.57 million to €5 million: 1%
€5 million to €10 million: 1.25%
€10 million+: 1.5%
There is also a handy online calculation meter for this tax: ‘How much IFI wealth tax do I pay for my home in France?‘
We advise you to discuss the best way to deal with IFI tax with our civil-law notary. If there are several buyers of the property, and the value of the property is above 1.3 million, it can be useful to divide the IFI tax burden. For specific tailor-made tax advice, we would, of course, also be happy to put you in touch with our international network of tax advisers.
//
