1. How to calculate capital gains tax?
Purchase price : Purchase price or value of the property on the day of the donation or the succession.
Purchase fees : Notary fees for their actual amount or fixed at 7.5% of the purchase price.
Selling fees : Property diagnostics, tax representation and other sales expenses.
Works Costs : Actual amount or flat rate at 15% of the sale price if owned for over 5 years.
Net selling price – (Purchase price – Purchase fees – Selling fees – Works Costs ) = Gross capital gain
From the gross capital gain, two possibilities :
Application of the abatement dependant on ownership period (IR). Net gain on the IR. Taxable at the rate of 19%.
Application of the abatement dependant on ownership period (PS). Net gain on the PS. Taxable at the rate of 17.20%
Which brings you to Total amount of capital gains tax to pay (Additional tax if the net capital gain taxable (IR) exceeds 50 000)
Rate of abatement for the period of ownership
|Number of years||IR Abatement||PS Abatement|
|0 à 5||0%||0,00%|
Additional tax scale
|Gross capital gain||Calculating tax|
|from 50 001 to 60 000 €||PV x 7% – 3 000|
|from 60 001 to 100 000 €||PV x 2%|
|from 100 001 to 110 000 €||PV x 13% – 11 000|
|from 110 001 to 150 000 €||PV x 3%|
|from 150 001 to 160 000 €||PV x 19% – 24 000|
|from 160 001 to 200 000 €||PV x 4%|
|From 200 001 to 210 000 €||PV x 25% – 42 000|
|from 210 001 to 250 000 €||PV x 5%|
|from 250 001 to 260 000 €||PV x 31% – 65 000|
|from 260 001 to above||PV x 6%|
I have just sold the property that I bought or inherited, must I pay property capital gains tax?
As a non-resident, you must pay property capital gains tax when you sell a property in France you have owned for less than 30 years, regardless of the origin of the property (Purchase / succession / donation …). This tax amounts to 36.2% of the taxable capital gain (19% + 17.2%), excluding any additional tax that may be applicable
How is taxable property capital gains calculated?
Taxable capital gain is equal to the difference between the sale price and purchase price.
This may be reduced by taking into account fees paid at the time of purchase or inheritance.
For donations and estates, these fees must be deducted at their actual amount.
For purchases “à titre onéreux” (against payment), these fees may be deducted up to a flat rate of 7.5% of the purchase price, or alternatively at their actual amount should this be more advantageous than the flat fee.
How do I take into account work I did on the property?
You may take into consideration construction, rebuilding, extension or improvement work (in the sense of “adding a new element of comfort”).
Repair, maintenance and renovation work is non-deductible.
Work must have been carried out by a business.
You must also be able to produce relevant invoices and documents.
I have not done any work / I have not kept the bills, what can I do?
If you cannot produce invoices and/or relevant documents and you have owned the property for over 5 years, work can be valued at a flat rate of 15% of the purchase price of the property. This flat rate is applicable even if you have not really done any work or if less extensive work was carried out.
Would it be better to keep my property longer before selling it?
From 6 years ownership on, you benefit from abatement on the amount of the capital gain due. This varies depending on the length of ownership. On each anniversary of the acquisition, this abatement increases. Regarding income tax (IR), this abatement is 6% for 6 years of ownership, and increases every year to reach a 100% reduction after 22 years of ownership. For the social charges (PS), this abatement is 1.65% for 6 years of ownership and increases each year to reach a 100% reduction after 30 years of ownership. After these 30 years of ownership, you shall be totally exempt from capital gains tax (IR and PS).
What happens if my IR capital gain exceeds 50 000 €?
Should your IR taxable gross capital gain at the rate of 19% be in excess of 50 000 €, an additional tax applies as indicated at the bottom of the chart on page 2.
For couples and co-owners, assessment of this 50,000€ threshold and the calculation of tax are made according to the share held by each party.
I previously lived in France; can I benefit from tax exemption on the capital gain?
There is no exemption in the strict sense, but it may be possible to apply Article 150 U II of the French Tax Code which allows for an abatement of 150,000€ on the taxable gross capital gain. This may in certain cases lead of a total exemption from property capital gains tax.
This abatement is applicable under 4 cumulative conditions:
- Having previously been taxed on income in France for at least 2 consecutive years,
- Having the nationality of a European country (or a country that has signed an agreement with an equal treatment clause),
- If this is your first sale of a residential property as a non-resident,
- And, if you left France over 5 years before, you had full enjoyment of the property since at least January 1st of the year prior to the year of the sale.
When and why should you appoint a tax representative?
If your fiscal residence is outside the European Union and the selling price exceeds the threshold of 150,000 € (for a married couple or a civil partnership, the threshold of 150,000 € is assessed for the couple), you must appoint a tax representative who shall be responsible for calculating the property capital gains tax rather than your notary.
What is the role of the tax representative?
The tax representative is responsible for drawing up, signing and guaranteeing the exactitude of his clients’ property capital gain.
In the case of adjustment by the tax authorities any taxes and penalties shall be paid by the latter for, should a tax adjustment be applied, it is the tax representative and not the seller who is liable for the amount of the adjustment, as well as for any penalties, interest for late payment and the 25% penalty applicable to non-residents. The responsibility of the tax representative is unlimited throughout the duration of the tax authority’s recovery period (3 years + the current year).
How is the tax representative paid?
The tax representative’s fees are deducted by the notary from the proceeds of the sale, and these fees are deductible from the sale price in the calculation of the property capital gain.
2. How to calculate property income?
Gross rental received : Including provision for charges
Deductible charges : Management fees, co-ownership charges, insurance contributions, property tax, maintenance and renovation fees, loan interest…
Taxable net rental income : Net rental income is taxable at the IR at a rate of 20% and at 17.2% for social charges
Gross rental received – Deductible charges = Taxable net rental income
Or a total of 37.2% which is the Total sum of tax on property income to pay
I own a property in France that I rent; do I have to pay a tax on rental income?
Yes, this tax is called “impôt sur les revenus fanciers” (property tax). You must pay this tax the year after you have received rental income, thus in 2018 you will pay the tax on income received in 2017. This tax amounts to 37.2% (20% + 17.2%) of the taxable income.
The 20% tax rate may be decreased in certain conditions of income. This eventuality may be applicable if your global income is low or is limited to simple property revenue sourced in France.
How are taxable property revenues calculated?
The net taxable income in France corresponds with the gross income received over the year, after the deduction of deductible expenses and in particular:
- Management fees
- Co-ownership fees
- “Non-occupying homeowners” insurance
- Unpaid rent insurance
- Maintenance and repair work
- Property tax (excluding tax on household waste)
- Loan interest and borrower insurance
If your deductible expenses are low and your gross income does not exceed 15,000 €, it is possible to apply the “micro foncier” system. This system allows you to benefit from a 30% reduction on gross income received (provisions for charges inclusive).
Consequently, you are taxable on 70% of the rent collected at the rate of 37.2%
3. There are 2 ways to declare your furnished rental income:
- The Micro BIC declaration
This first option consists of declaring the gross total of rent collected during the year. Based on this amount, the tax authorities apply a 50% flat rate abatement to finally tax 50% of gross rent collected during the year. Consequently, the non-resident will be taxed at 37.2% on half of the gross rent received during the year.
Although this system is the simplest, in many cases it is not the best.
- The « regime réel » declaration
Unlike an unfurnished rental where the owner can only deduct usual expenses from his taxable base (co-ownership charges, property tax, insurance contributions, management fees, renovation work and loan interest), the furnished rental also allows to deduct a supplementary fictitious, non-existent charge known as amortisation.
Indeed, the mere fact of renting an apartment or house furnished allows the owner to amortise his property for tax purposes and consequently reduce his tax base.
Generally, the rented property can be amortised over a more or less lengthy period of time depending on a significant number of parameters.
The “au reel” declaration, a real tax economy
In general and as an indication, an apartment can be amortised over a period of 30 years and on 80% of its market value. Consequently, the addition of this supplementary charge very often allows the taxpayer to record a fiscal deficit, allowing him ultimately to not be taxable on the furnished rental income. This is the major advantage of declaring the furnished rental income with the “au reel” system.
Note that in the year of acquiring a property, it is possible to deduct the notary and agency fees, thereby increasing the fiscal deficit.
In order to benefit from this “declaration au reel” tax option, prior registration as a non-professional furnished rental owner is required. Without this registration, only the Micro Bic option is available.
Since January 1st 2018, the ISF wealth tax has become known as the IFI property fortune tax. Non-residents are subject to this when their taxable wealth exceeds 1,300,000€.
The taxable wealth of a non-resident comprises all immovable property owned in France as well as “SCI, SCPI” and/or “OPCI” shares.
Excluded from taxable wealth are liquid assets (current accounts, savings accounts, share accounts, life insurance and other financial investments), as well as vehicles, boats and furniture.
Deductible from this taxable wealth are debts related to real estate (real estate loans, construction works, reconstruction, extensions, maintenance, Property Taxes, IFI).
In some cases deduction of these debts may be capped.
When the taxable wealth exceeds 5 million euro and liabilities represent over 60% of the taxable assets, the amount of debt exceeding this threshold is deductible to up to only 50% of this surplus.
Net wealth is therefore calculated and taxed as follows:
|Taxable net value||Applicable rate|
|Up to 800 000 €||0,00%|
|Between 800 001 and 1 300 000 €||0,50%|
|Between 1 300 001 and 2 570 000 €||0,70%|
|Between 2 570 001 and 5 000 000 €||1,00%|
|Between 5 000 001 and 10 000 000 €||1,25%|
|Above 10 000 001 €||1,50%|
4. IN SHORT, LOCAL TAXES
What is property tax?
As owner of an apartment or house in France, you are liable for property tax. Calculating property tax depends on the municipality in which the property is located as well as its registry rental value (valeur locative cadastrale).This tax is acquitted at the end of the year.
What is housing tax?
If your property is not rented and you are able to occupy it at any time, you are liable for housing tax.
This depends on the situation on January 1st of the year in reference.
Housing tax is calculated according to the registry rental value (valeur locative cadastrale) of the house and its annexes, as well as the municipality in which the property is located. This tax is also acquitted at the end of the year.
What is the tax on vacant dwellings?
In some municipalities, when your property is not furnished you must pay a tax on vacant housing instead of the housing tax.
- Vous n’avez toutefois pas à payer la taxe sur les logements vacants dans les situations suivantes :
- The dwelling is vacant against your wishes (for example, a property to be let or sold yet with no tenant or purchaser)
- Accommodation occupied for over 90 days (3 months) in a row per year
- A furnished secondary residence subject to housing tax.
CSG-CRDS and non-residents
In a decision dated February 26th 2015 (the Ruyter jurisprudence), the European Union Court of Justice condemned France for having applied social contributions to non-residents.
The tax authorities were consequently obliged to reimburse some non-residents, and in particular residents of the European Union who had been subject to social contributions in 2013, 2014 and 2015 when taxed on capital gains or paying property taxes.
Since January 1st, 2016 however, the social security finance law has been amended allowing the French state to continue to apply social contributions to non-residents.
To date, non-residents regardless of their country of residence must therefore pay social contributions on their property wealth.
However it is possible that despite this change in the law France may nonetheless be condemned once again by the European Union Court of Justice. If this happens, it may soon be possible to submit a claim for social contributions.