Buying property in France as an expat: tax tips

When considering purchasing property in France as an expat, understanding the tax implications is crucial. French property laws and taxation can be complex, especially for non-residents. This guide provides a detailed overview of the tax obligations, exemptions, and strategies to help you navigate the landscape effectively.

1. General overview of property ownership in France for non-residents

Foreigners, including non-residents, may freely purchase property in France without requiring prior administrative or judicial authorization.

Ownership does not grant residency rights. Residency permits are governed by separate immigration laws.

2. Key taxes on property ownership

Taxe Foncière:
- Annual tax paid by the owner based on the property's rental value.

Taxe d'Habitation:
- Applies to second homes held by non-residents.
- Non-residents generally cannot claim exemptions unless their family resides permanently in the property.

3. Income taxes on rental properties

Rental Income:
- Unfurnished rentals: taxed as 'revenus fonciers'.
- Furnished rentals: taxed under 'Bénéfices Industriels et Commerciaux' (BIC).

Deductible Expenses:
- Mortgage interest, repairs, property management fees, taxe foncière.

Special Regimes for Non-Residents:
- Minimum tax rate of 20%, unless a lower global rate can be demonstrated.

4. Capital gains tax

Applicable Rates:
- Income tax: 19%
- Social contributions: 17.2% or 7.5% depending on the country of residency.

Exemptions:
- Primary residence exemption typically unavailable to non-residents except if the property was the primary residence under certain specific conditions.
- Special exemption up to €150,000 may apply for former French residents.

5. Inheritance and gift taxes

French inheritance tax applies to French-situated property, regardless of the heir’s residence. Rates depend on familial relationship.

6. French real estate wealth tax (Impôt sur la Fortune Immobilière - IFI)

Applies to French real estate holdings exceeding €1.3 million.
- Non-residents are taxed only on French assets.

7. Strategies for tax optimization

- Use a French SCI (Société Civile Immobilière) for ownership.
- Utilize deductions.
- Plan capital gains around favorable conditions.
- Review applicable tax treaties.

8. International tax treaties and avoidance of double taxation

- France has treaties with many countries.
- UK-France Treaty allows credit for French taxes when calculating UK liabilities.

9. Practical steps for compliance

- File annual returns for income, ownership, and gains.
- Appoint a fiscal representative if required.
- Maintain accurate documentation.

10. Key takeaways and recommendations

- Work with a tax advisor familiar with French property taxation.
- Understand your obligations and leverage treaty protections.
- Plan ahead to minimize tax burdens legally.