We know that one of the pitfalls of expat life can be wrapping your head around the taxes and paperwork of your new home country. Let’s face it, taxes can be complicated enough even if you’ve lived in the same country for your whole life! So getting used to a whole new system that works in an totally different way is (unsurprisingly) going to be a bit of a learning curve.For this reason, we’ve created this guide to outline the process of these French taxes and to answer any questions you may have.
Taxe Foncière: Land Value Tax
Taxe Foncière is an annual tax for property owners in France. It applies regardless of whether your property is occupied by you or rented out to tenants. It needs to be paid by the 1st of January every year and is divided between community services.
The tax is calculated by assessing the notional rent the property could earn. That assessment is then discounted by 50 percent to factor in cost of running the house, such as repairs, home insurance and so on. Further to this, a percentage rate is applied to the notional rent based on the amount that the authorities need to raise, referred to as taux d’imposition.
The rate of tax often varies depending on whether the property is your main home or a second home. To query the tax, you will need to contact your local Centre des Impôts Fonciers, the contact details of which should all be provided on your tax form.
Taxe d'Habitation: Residence Tax
In the same vein as the Taxe Foncière, Taxe d’Habitation is an annual tax for the residents of a property. You do not have to be the owner of the property; the law states that if you are the rightful occupier of the property on the 1st of January (whether you are a temporary or permanent tenant) then the tax is payable. Your liability for the tax is not related to how long you occupy the property.
For example, if you only occupy the property a few weeks in the year, and the remainder of time it is let out as a furnished property, you could potentially be exempt, but may instead be liable for business rates. If the property is let on an annual basis, then the tenant is liable for Taxe d’Habitation.
This particular tax has become infamously complicated, but put as simply as possible, it is, like the Taxe Foncière, based on notional rental value. A formula is added to this value by the authorities. This means that the tax can vary in accordance to each commune. A relief of 10 to 15 percent for each dependent is granted, but only if the property in question is your main residence.
However, bear in mind that recent changes will result in a different calculation for certain groups of people.
Changes To Taxe d'Habitation
Deductions will be made on a phased basis over the course of three years from 2018, with the plan to completely abolish the Taxe d’Habitation for eligible people. This year (2018), you should have seen a reduction to the tax if you are in one of the following groups:
– Single persons receiving a net taxable income of less than €27K*
– Couples receiving a joint taxable income of less than €43K*
– Retired persons receiving a pension of less than €1,200 per month
*Increased by €6K per annum for each dependent in the household
Second Homes And Higher Value Properties
For second homes, tax can be much higher, and holiday homes in areas of housing shortage are likely to face an increase of up to 20 percent on their tax. However, those who have a second home for business or professional reasons can be exempt.
Homes with a high value will also face additional charges, referred to as prélèvements pour base élevée. This is applicable to:
– Main residences where the value exceeds €4,573, where the rate will be 0.2 percent
– Second homes with a value between €4,573 and €7,622, where the rate will be 1.2 percent. If the value exceeds €7,622, the rate will be 1.7 percent.
What You Need To Know
The French government has started the process of updating their records, meaning potentially this tax will increase. It is possible to opt to pay this tax in monthly installments as opposed to one bill.
Newly-built properties, substantial extensions to pre-existing buildings and full, recently renovated properties are exempt from the taxe foncière for the first two years following completion of the work, although this is on the condition the work is declared to authorities within 90 days of completion.
The above exemption has the potential to be extended from two to five years for certain renovation projects or new-builds, on the provision that they meet energy efficiency requirements. Bâtiments ruraux (buildings used exclusively and permanently for agricultural purposes) are exempt.
One of the main factors that makes this system complicated is that the tax calculations are based on notional rent, the values of which have not been updated since around 1970. This means that the calculated notional rent may not be accurate or have much bearing on the current property condition, value and so on.
As mentioned above, the Tax d’Habitation is slowly being phased out for certain groups, which means that you will have to regularly check what the situation is in terms of liability, eligibility, payments and so on.
The local authorities have the power to grant a rebate of up to 15 percent at their discretion for those on modest incomes, providing the value of the property is less than 130 percent of the average of that area. This is only applicable if it is your main residence.
If you move to a property halfway through the year, the previous tenant will be accountable for paying the tax for that whole year. However, this can be subject to prior agreements with the landlord.
The tax is not payable is the property is unoccupied. However, the definition of “unoccupied” is based on whether the property is capable of being occupied. For example, properties undergoing extensive renovation that you do not occupy and which are not furnished so cannot be lived in would be exempt. You would need to specifically obtain an exemption from your local council, rather than assuming the property is exempt. Do not skip paying the tax without prior discussion.