Useful things to know before buying your property

Finding one's way in the French tax system is not always easy, especially for non-French investors. We have collected some main points for you:

Financing your investment in French Riviera property

Even if you do not need a loan to finance your investment it can be advantageous to take out one. First of all, taking a loan will allow you to deduct the interest from your property related revenues. Secondly, if you generate a real estate deficit this will be deductible from your taxable income. Currently two types of credit exist:

• The 'crédit amortisable'; a long-term loan at a fixed or variable interest rate, guaranteed by a mortgage or other kind of security. The tax-deductible share of the interest diminishes as the loan reimbursements advance.
• The 'in fine' loan, where you reimburse the whole capital borrowed at the end of the contract. The interest is usually paid independently from the capital. A life insurance policy can be established at the same time as the loan, to accumulate capital for the repayment of the loan. An 'in fine' loan can be more advantageous than the 'crédit amortissable', since it gives a linear deduction of loan interest during the whole loan period.

Letting unfurnished property

Whether paid to the owner or to another member of his household, and regardless of whether the landlord is owner, co-owner, an SCI ('société civile immobilière') or an SPI ('société civile de placement immobilier'), income from letting unfurnished property is taxable. One of two systems will apply:

• If the owner's total gross income from letting out real estate is more than 15.000 € per year, the general tax system will apply.
• If the owner's real estate income does not exceed 15.000 € per year the 'micro foncier' system applies, under which the owner is automatically granted a 40% deduction on his real estate related revenues.

Letting furnished property

All income from letting furnished property is considered as industrial or commercial profit ('bénéfices industriels et commerciaux' = BIC) and is taxed accordingly. However, if the owner is registered as a professional landlord other types of taxation may apply (e.g. 'impôt de solidarité sur la fortune' = ISF).

Tax related advantages when letting your French Riviera property

Under the general tax system, if you are letting your property you are entitled to deduct from your gross real estate related income

• interest and expenses related to loans taken in order to buy the property;
• 14% of the revenues for sundry expenses (insurance, depreciation, etc.);
• property tax ('taxe foncière') on buildings, regional tax and a special infrastructure tax ('taxe spéciale d'équipement')
• expenses related to maintenance, repairs and renovation, as well as interest and expenses concerning loans to pay for the work;
• expenses related to caretakers' wages, agency management fees, insurance against unpaid rents;

After deduction of these items,

• if the property related income is greater than the deductible expenses, the difference will be subject to the following taxes: income tax ('impôt sue le revenu des personnes physiques' = IRPP), CSG ('Contribution Sociale Généralisée'), and CRDS ('Contribution au Remboursement de la Dette Sociale');
• if your expenses are greater than your income you have what is called a 'déficit foncier', which can either be deducted from your taxable revenues for the year up to a limit of 10.700 €, or be carried forward for the next ten years. In order to benefit from this scheme you must let your property for a minimum of three years from the year the deficit is deducted.

Taxation of capital gains from real estate

When a private citizen sells a property the capital gains from the sale are in general liable to income tax. The public notary calculates and pays this tax at the same time as he records the sale and registers it with the land registry.

Capital gains subject to taxation

These are the gains you make as an individual when you sell property, real estate rights such as usufruct or ownership without usufruct, or shares in a property company like an SCI or an SCPI.

Some capital gains come under a different taxation system; for example, those related to shares in SICOMI ('Société Immobilière pour le Commerce et l'Industrie') companies; and professional capital gains on property used as business premises.

Tax exempt capital gains

You will not have to pay tax on capital gains

• if the property sold is your main residence (incl. any accompanying outbuildings);
• if you are selling your property as a consequence of expropriation and you use the revenues for buying other property;
• if you have been the owner of the property for more than 15 years;
• if you benefit from an old age or invalidity pension;
• if the sale price is less than 15.000 €.

Tax on empty housing

Since 1999, a special tax is payable on empty housing in the areas of Paris, Lyon, Lille, Bordeaux, Toulouse, Montpellier, Nice and Cannes-Grasse-Antibes. These are areas where there is a considerable lack of accommodation for rent, and the tax was introduced to encourage property owners let their properties rather than leaving them empty for long periods.

The tax is payable on any apartment or house that has been empty for more than two years consecutively, which is unfurnished or not sufficiently furnished to allow occupancy.

However, the tax does not apply if the property is empty due to circumstances beyond the owner's control. This could be the case if, for example, the property is awaiting rehabilitation or demolition, or if the owner has not been able to find a tenant or buyer because of high market prices. Also exempt are secondary residences and property in need of large-scale renovation (i.e. worth more than 25% of the property's market value) before they can be lived in.

The tax on empty housing is calculated on the basis of the gross rental value of the property, and the rate varies according to how long it has been empty:

• 10% the first year the property becomes taxable;
• 12,5% the second year;
• 15% in each of the following years.

On top of this is added 9% for administrative expenses.

Useful links (French language)

The portal of the French administration, questions and answers on income tax matters

The French tax office

Find your local French tax office (type in the location and département)