A luxury property buyer’s guide to France
You can purchase property in your own name or Ltd Co (SCI or SARL depending on the property use). Both require a personal guarantee.
Stamp and legal costs for purchase: +/- 8-9% of the purchase price.
Purchase with mortgage or not. This depends on the purchase price. Wealth tax at €1.3m is the consideration.
Capital gains tax on disposal +/- 35% minus certain allowances.
Mortgage rates from 2% on a variable rate basis. 15 year fixed rates 2.55% and 20 years currently 2.75%.
Variable, capped and fixed rates mortgages available. No early repayment penalty options available.
Banks fees: typically 1% of the loan amount depending on the amount being borrowed.
Repayment or interest only mortgages available.
It is important you equate purchasing costs into your budget when selecting a property. On average you will be looking at paying an additional 10% of the purchase price in associated property costs, taxes and fees.
Capital Gains Tax
The rules governing the taxation of capital gains on real property have been changed. Before you sell, it is a good idea to have a precise idea of how any capital gain will be taxed.
The capital gain is equal to the difference between the sale price and the purchase price or the value that was reported when the property was received as a gift or by inheritance.
The rules governing capital gains vary in accordance with the sale price, the nature of the asset, and how long the asset has been held. Capital gains made on the sale of assets are exempt when the sale price is less than €15,000.
This also applies to the gains achieved on the sale of a principal residence which are totally exempt, regardless of how long the property was owned. Since 1 February 2012, capital gains achieved on properties sold when the property has been owned for 30 years or more are also exempt.
In other cases, since 1 October 2011, the vendor is liable to pay tax on the gross capital gain at a rate of 32.5%.
The amount is reduced by:
- 2% for the sixth to the 17th year of ownership;
- 4% for the 18th to the 24th year;
- 8% up to the 30th year.
Article 5 of the French 2012 Finance Law has clarified the taxation of capital gains realised on the disposal of property built for residential purposes, when the property is of mixed use. There is now an exemption. It applies to the fraction of the capital gain that derives from the disposal of that part of the building used for residential purposes. The exemption can only be applied once as from 1 February 2012, on any sale chosen by the vendor, at the vendor’s request, provided all the other conditions have been met.
A taxpayer who does not own their principal residence, may receive an exemption of capital gains realised on the first sale of a home under certain conditions:
- The seller has not owned their principal residence, directly or through intermediaries, during the four years preceding the sale (CGI, art. 150 U II, 1 ° bis, para. 1);
- The transferor must proceed to reinvest the proceeds of sale “within twenty-four months from the transfer, for acquisition or construction of housing that affects, upon completion or acquisition whichever is later, to his main residence “(CGI, art. 150 U II, 1 ° bis, para. 2 – in limine);
In case of breach of any of these conditions, the exemption is challenged under the year of failure (CGI, art. 150 U II, 1 ° bis, para. 2 – end). Concerning investment products, from 1 July 2012, it should be noted that payroll taxes will increase to 15.5%, and capital gains will increase to 34.5%.
Not all improvements to real property are tax deductible. Only the following improvements are deductible and, in order to benefit, the vendor must have kept the invoices and must not have deducted these expenses for income tax purposes in the past:
- Improvements intended to make the property more comfortable or better
suited for modern living, such as the installation of a lift, double glazing,
a bathroom, etc.
- Construction work
- Failing this, the vendor may make a flat rate deduction of 15% of the
purchase price. To be eligible, he/she must have owned the property sold
for at least five years.
In all cases, the cost of renovation work, maintenance and repairs may not be
deducted from the calculation of the capital gain.
The notaire’s advice
If you have made a lot of improvements to your second home, keep all the invoices, as the purchase price may be increased by the amount of the real cost of the works carried out, provided you have kept all the invoices. Failing this, a flat rate increase of 15% may apply, if you have no invoices to prove otherwise, provided the property has been owned for at least five years.
If you own or live in property in France, then you will have one or two local property taxes to pay each year.
Taxe foncière is a land tax, and is paid by the owner of the property.
Taxe d’habitation is a residence tax. You have to pay this tax if you own a property and live in it yourself (or have it available for your use, or rent it out on short-term lets). Where properties are rented out long-term, the tenant pays.
Both taxes apply to non-residents as well as residents, and are often higher on second homes than on main residences due to possible discounts on the main home.
Demands for both taxes are sent annually. The amount must be paid by a specified date, usually in October (Taxe foncière) and November (Taxe d’habitation) but varies from place to place. Failure to pay on time incurs a 10% penalty.
Payments can be made by cheque, interbank payments, bank transfers or online.
Taxe foncière is paid by the owner of the property, irrespective of who occupies it. The tax is divided into two parts: tax on buildings (taxe foncière sur les propriétés bấties) and tax on land (taxe foncière sur les propriétés non bâties). The latter is no longer levied locally and is levied nationally instead. The tax on buildings is paid on any property that is habitable, whether or not it is occupied.
If you sell a property part-way through the year the tax is apportioned by the notary dealing with the sale.
An exemption is available against the main home if the occupant is 75 or over (or in receipt of certain disability or old age allowances) as at 1st January of the relevant year, based on the level of taxable income in the previous year. The calculation, which also applies to the exemption for taxe d’habitation, depends on the number of “family quotient” (quotient familial) units available.
For 2014’s taxe foncière, the maximum income levels based on 2013 income is €10,663 for the first family quotient unit (so this is the limit for a single person), and then €2,839 for all extra half units. Where the taxpayer is aged between 65 and 75 at 1st January and their taxable income falls below the above limits, a flat €100 discount is available against the taxe foncière payable on their main home (unless they share the house with anyone other than a spouse or dependant).
Exemptions and reliefs are available on land used for certain purposes such as farming. New buildings and renovated properties used as the main home are exempt from taxe foncière for the first two years after construction. Renovated properties can benefit provided that reconstruction or additional construction work has been carried out, and is determined according to the nature and size of the work. A special Tax Form (H1 or IL) must be filed with the local tax authorities within 90 days of completion of the property or renovation works.
Taxe d’habitation is determined by local and county councils and is spent on community services by your local municipality. It is paid by the household living in the property on 1st January each year, whether it is an owner or tenant, or by the owner if vacant.
The tax is based on a notional rental value for the property multiplied by the tax rate fixed in the locality. The rental value is assessed by the land registry (cadastre) to which you must send notification of anyimprovements or changes to the property within 90 days. It is possible to appeal against their decision, but the margins involved are generally small.
There are various deductions available on the main home for people on very low incomes or with dependents. For example, three children would attract a discount of 35% of the average taxable value for the immediate area. These percentages can be further increased by 5%-10% per dependent if the municipality decrees. Also, a couple with three children would start to see further discounts of 5%-15% where their annual household income did not exceed a certain threshold.
For people aged over 60 or for widows/ers (no age restriction) who occupy the property as their main home as at 1st January and who are not subject to wealth tax, if their net taxable income does not exceed €10,663 for a single occupant, or €16,311 for married occupants, an exemption for taxe d’habitation is given. The 2013 taxable income is taken into account for calculating the exemption available against the 2014 taxe d’habitation.Taxe d’habitation also applies to mobile homes and caravans if they are the taxpayer’s main residence. The rate is €25 per square metre but is not payable if the surface area is less than four metres squared.
The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual should take personalised advice.
Information provided in this Buyers Guide is subject to change without notification, every effort is made to keep these details up to date.
Managing Director and Founder