Cotisation Foncière des Entreprises (CFE) Tax on Furnished Rental Properties
CFE is a tax levied against homeowners who let out a furnished property as a business activity. Translating to a ‘property tax on companies’, CFE is paid annually and, as with the previous two tax categories, is calculated based on the property’s rental value.
Owners of furnished rental properties who earn under €5,000 (£4,280) a year can normally claim an exemption. Note that second homeowners with an unfurnished holiday home or rental property are not subject to CFE charges.
Understanding French Wealth Tax on Property Ownership
The French tax system levies an annual wealth tax based on the value of your property portfolio, called the Impôt sur la Fortune Immobilière or IFI. If you own real estate assets worth €1.3 million (£1.11 million) or more, you may be liable, although properties are assessed for IFI from a value of €800,000 (£685,000) and above – anything below this is not taxable.
IFI tax rates depend on the total valuation, with most affluent property owners subject to a 0.5% tax rate on properties worth up to €1.3 million (£1.11 million), with progressive increases up to an upper limit of 1.5% for property assets worth €10 million (£8.56 million) or more.
Non-residents with properties in France may be required to pay IFI, although only real estate within the country is assessed. Tax residents will be evaluated for IFI based on all their worldwide property assets. All real estate is included, such as a primary home, investment property, rental residence and second home. However, you can claim a 30% deduction in the assessed value of your main home for IFI tax purposes.
Foreign nationals who are new residents in France and who were previously domiciled in another country will be assessed for IFI solely on their French properties for the first five years – after that, all global real estate assets are included in the calculations.
Capital Gains Tax on Properties in France
The French capital gains tax system exempts primary homes, so if you own a principal residence in France and live there at the time of sale, you will not usually incur a capital gains tax charge. In some cases, you may claim exemption if you were not living in the home at the date of the sale but were within the last 12 months, depending on the circ*mstances.
Other property assets may attract a capital gains tax liability on the value earned in excess of the original purchase price. The standard capital gains rate is 19%, but social charges may apply – typically added at 17.2%. Additional surcharges are calculated progressively based on the gain made, with a 2% additional social charge for gains of over €50,000 (£42,800), rising to 6% if the net gain exceeds €260,000 (£223,000).
Capital gains tax charged on property sales is capped at 42.2%, and property owners who make a taxable gain at the point of sale but have owned the real estate for a significant period can claim tapered relief. For example, if you have owned a home for 22 years or more, you can claim an allowance of 6% per year.
Further, social charges drop after five years of property ownership and are not payable if you have owned the property for 30 years or longer. Capital gains tax can sometimes be waived if you use the gain to reinvest in purchasing a primary residence if you have not owned a habitual home in France within the last four years.
Calculating French Property Tax Liabilities as an Expat Owner
Some of these tax charges may depend on whether you are a French tax resident or a British tax resident who spends some of the year in France but lives primarily in the UK.
Broadly speaking, British nationals are liable for taxe foncière, capital gains taxes, income taxes on French rental incomes, the IFI wealth tax, and the taxe d’habitation on a second home. However, they may be able to pay a reduced social charge rate of 7.5% if they hold an S1 healthcare certificate.
For more information about property tax in France, how these apply to your real estate ownership, and factoring in these costs, please contact the Chase Buchanan Bordeaux team.
*Information correct as at March 2024
