If you are looking to buy a property in France you need to be aware of the taxation costs involved from the outset. Often the French house purchase and property taxes can have a big hit on people's budgets. Paddy Gibbins, Maisons Tournesol's resident Property Investment specialist gives the low down on French Property taxes.

French Property Purchase taxes

For new property purchases in France there are two taxes payable, the most important of which is the adjusted value tax. In total these taxes amount to just over 20 per cent of the value of the property (see Buying a new build in France). When purchasing a property more than five years old there are three separate taxes payable with a maximum tax payable of just under 9 per cent.

Notary's fees

Notary's fees on purchases in France are calculated in a complicated banded-rate system dependent on purchase price and varying categories of purchase. The rates are calculated in bands at varying percentages from 5 per cent for the first €3,000 outlay and then incrementally down to 0.3 per cent on the portion exceeding €120,000. These fees are quite variable so your legal or fiscal representative should outline them to you in advance of the purchase (see the Role of a Notary).

Taxe Fonciere

Ongoing property ownership tax will be payable annually.  This tax is called the Taxe Fonciere and is based on 50 per cent of the 'valeur locative cadastrale' (land tax assessment value).The value is calculated by multiplying the cadastral revenue by the rate set for the commune in question.

Incomes and wealth taxes in France

Wealth tax, or 'impôt sur la fortune', is a tax on asset values paid by any household, resident in France, whose combined worldwide assets are valued at more than 732 000 €uros on 1st January 2007. Your household includes spouses and dependent children, and it should be noted that stable unmarried couples are also taxed together.  Non-residents of France may also have a wealth tax liability, but only on their French property assets.

The values of your assets are the sale or surrender as at 1st January 2007, and the onus is on you the taxpayer to put the correct current market value on your assets.  You can reduce the value of your principal residence by 20% and can value your home contents at either their real value or set them at 5% of your total assets.  Any liabilities you have are then deducted, such as outstanding loans or tax bills to be paid.

Very few assets are exempted from wealth tax, with the main ones being antiques, fine art and "business assets".  The rules are relatively strict as to what defines a business asset, and adherence to the rules is heavily controlled. The tax is calculated on a banded system starting at 0.55% for assets value over 732 000 €uros.

Rental income in France is taxed at a flat rate of 25 per cent for non-residents. Nationals are taxed on a sliding scale with a maximum taxable rate of 25 per cent.

It is important to remember that in France, as in most countries, it is the responsibility of the individual to complete a tax return - the onus is not on the authorities to ask for the tax. There are several forms which need to be completed to file tax returns such as 2044 for property, 2047 for foreign source income and 2049 for capital gains. The French system taxes the husband in a marital relationship for income from his spouse and all dependent children under 18.

French Capital Gains Tax

There is a terribly convoluted method of calculating the CGT payable in France depending on residency status and length of ownership. In the main, the sale of a property which has been owned for more than five years will be CGT exempt if you have lived in France for one year at some stage. If not, the difference between the sale and purchase price is calculated with 10 per cent allowance for acquisition costs and 15 per cent for repairs and improvements (or more if documented). There is a small threshold of about €10,000 depending on marital status and number of dependants but all gains over this limit are taxed at 33.3 per cent.

French Inheritance tax

Inheritance tax is payable in France at rates varying from 5 per cent up to 60 per cent, depending on the relationship between the donor and recipient and the value of the property in question. As with other countries it is possible to alleviate some of this tax bill by choosing the means by which you purchase carefully. The "usufruct" or life interest structure is often used to reduce taxes payable in such instances, it is therefore important that proper legal and fiscal advice be taken before consideration is given to any purchase.

Paddy Gibbins is the Managing Partner of Buy To Let Montpellier. His company specialise in helping Property Investors find suitable investment properties in the South of France. Paddy also has extensive contacts with reputable Real Estate agents across the South of France. If you are visiting the South of France to view property, Paddy is excellent at developing property viewing schedules that meet your requirements. You can contact Paddy at: This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
Tel: +44 (0) 870 800 3232
Mob: +33 (0) 6 26 67 43 76
www.buytoletmontpellier.co.uk