Property Tax in France

There are two types of property tax in France (similar to the UK council tax). These are:

• Taxe Foncière. This translates as 'land tax' but in fact is a tax on real estate of any kind (land, house, outbuildings, etc.).
• Taxe d'habitation. This translates is 'dwelling tax' or 'habitation tax' and is a tax on the property in which you live.

The first tax is paid by the owner of the property and the second by the occupier. If you own the house in which you live, then you pay both taxes. The amount of these taxes is determined mainly by the value of the property (specifically, the notional rental value, as determined by the tax authorities). The more valuable the property then the higher the taxes.

As these are local taxes, the amounts are also affected by local rates, so two equivalent properties may have different levels of taxes, depending on where they are located. In essence, the notional rental value is multiplied by a rate for the local commune, a rate for the local department, a rate for the local region, plus 2.5% collection tax added on by the state government. The total of these four elements is the amount of tax due. The rates used for Taxe Foncière is different that the rates used for Taxe d'habitation, so the two tax bills have different amounts.

For each of these taxes, you will receive a notice from the tax office when they are due. You can either pay in a single payment, or in installments. If you buy a property part way through the year, the notaire handling the property purchase will normally collect from your account the amount due for the Taxe Foncière for the remainder of the year.

Checking property taxes before buying

Each of these two taxes can be thousand of euros, so if you are looking to buy a property it is worthwhile checking on the amount of these taxes before making an offer.

Some property owners will enhance the value of a property (through an extension, major renovation, addition of a swimming pool or outbuilding), without fully declaring the work to the tax office. In this case, the taxes are based on the old value of the property rather than the current value. When a property is sold, the tax office will often request the new buyer to provide information (via a form sent to the buyer in the year after purchase) on the property (such as square meters, type of heating, presence of outbuildings or swimming pool) which it will use to recalculate the property value for tax purposes. If you complete this form honestly (and to do otherwise is a serious legal offense!!), and the previous owner has not fully declared all items, then you might find that both taxes increase substantially once the form is processed by the tax office. This was the case when we purchased our renovated farmhouse, with the result that taxes jumped by over 50% once we submitted the form.

Even more serious, property owners may do work without building permission. When the authorities find out about this, they may require that the work be demolished (e.g. if it strongly contravenes building regulations). Alternatively, if the building work is allowed to remain, you will not only have to pay tax on the additional value provided but will be liable to an additional punitive tax because the work was done without building permission. In some cases, you may be able to secure permissions and approvals for such work, but do not depend on it.

Consequently, prior to buying a property or making a binding offer, it is advisable to:

• Check the current level of these two property taxes. Ask to see the tax demand for the current year, rather than depending on the verbal statement of the seller.
• Check that all elements of the property have had building permission and building approval. If you do not have time to check this before signing a contract, make sure that a clause is added to the contract to this effect. Normally there is a period of at least several weeks between the initial contract and the final contract and you can use this time for yourself or your notaire to verify this clause has been met.
• Check that any work, extensions or additions to the property have been declared to the tax authorities and is included in the current tax calculation. If you do not have time to do this before making an offer, ensure that there is a clause in the initial contract and have this verified before signing the final contract.
• If you are planning on doing major work, consider the implication of this to your annual tax bill and evaluate whether you wish to make the property purchase on this basis.

Building, Renovation, Change of Purpose and Taxes

As discussed above, any work which enhances the value of a property is likely to result in a corresponding increase in both property taxes. Consequently, if you are considering major works, you will need to budget not only for the cost of these works, but also for a corresponding increase in the annual property taxes. If you are unsure of the amount of tax increase you will be liable for, your local tax office can provided guidance.

You are required to report any such work to the authorities (Centre des Impôts Fonciers or Bureau de Cadastre) within 90 days of completing the work. If you live in a village or countryside, the local mayor's office can help you with the paperwork or any questions you might have. In towns or cities you can go to the local government offices (préfecture) for assistance.

If you change the way in which the property is used, this may also have an effect. For example, if you buy a property which was partly used for agricultural purposes and decide to use it entirely for personal habitation, then you no longer apply for the agricultural discount. Likewise, if you change it from business premises or student lodgings.

Exemptions and Reductions

There are a number of conditions in which you may be entitled to a reduction in the taxes, or even complete exemption. If any of the following apply to you, you can apply to the local tax office for an appropriate change to the taxes:

• Age based (e.g. over 75)
• Low income
• On disability pension
• Premises used for agricultural, business purposes, or student lodgings
• New properties may be eligible for an exemption for the first 2 years

If you feel that the amount you are being charged is incorrect, you can apply to the local tax office to have it changed.

Tax Evasion, Avoidance and Loopholes

Although tax evasion is illegal, there are a number of ways in which one might be able to legally avoid a portion of the taxes. For example:

• If you are renovating a house with the idea of selling it and do not need to use the entire house, then you could block off the portion of the house which is not being used. Since the space cannot be accessed, it cannot be used and consequently has a rental value (which is used to determine taxes) of zero.
• Alternatively, if you need access to a space for work but are not otherwise using it, you can render it uninhabitable by leaving a window uninstalled or shutting off heating to the area (not from the radiators but somewhere more permanent).
• Keep in mind that the taxes are not based on what rooms and facilities you use, but what is accessable and useable.

There are also some loopholes. For example, for a room to be considered habitable, it must have a certain mimimum height. I know of one builder who put a false ceiling in his children's bedrooms to bring them below this level (the children are young so they don't have an issue with the height). However, such tricks where one uses space but avoid taxes on it are a grey area and could be intrepeted as evasion, so caution and professional advice would be prudent.

Calculation

Although we have requested information from the tax office as to how they calculate the notional rental value of the property (which is the basis for calculating the tax due), they have declined to provide this information (explaining that it is very complex). However, we have examined a copy of the data form which they use for the calculation, which shows that the factors which they consider are:

• The overall size and elements of the house. This consists of:
• Number of rooms. The number of rooms is very important when calculating the tax. On the form this is sub-divided into:
• General rooms (dining room, reception room, library, etc.)
• Bedrooms
• Kitchens under 9m² and kitchens over 9m²
• Bathrooms, shower rooms, and toilets with running water
• Other rooms (e.g. entrance, office, storage rooms)
• At the end, one is required to provide the total square meters for the above, which is also used in the calculation
• The number and total size of any rooms used for professional or business purposes (e.g. office, waiting room)
• Garages and other elements incorporated into the house. These include garages, basements, attics, laundry rooms and so on.
• Terraces and accessible roof terraces
• The comfort aspects of the house. This consists of:
• Electricity, running water and gas.
• Sanitary facilities (toilets, sinks and wash basins)
• Mains sewage (as opposed to a septic tank)
• Central heating or air conditioning
• General information. This consists of the construction material for the walls (e.g. stone, brick, wood) and roof (e.g. tiles, metal sheeting) and the general condition of the house.
• The amount of land associated with the house.

Our information indicates that the above list is in order of importance. The most important factors are the number of rooms and the square meters of living space. Other rooms (e.g. basement, attic) and comfort factors are next in importance, followed in importance by the last factors listed above.