Tax - The Bigger Picture - An overview of French Taxes

Owners who are French tax residents or earning other French sourced income, may find that renting out their property as a furnished rental (LMP) can be very tax efficient because the loss generated by interest payments on their loan can be offset against income. They pay a progressive tax rate ranging from 5.5% to 40% on their net income. Non-residents’ income is subject to the same progressive rate; however, this cannot be less than 20% of net income.

Wealth tax
If, at 1 January 2007, the property is valued at more than €760,000, a wealth tax form must be filled in and filed with the tax centre. For non-French tax residents, the wealth tax base takes into account the market value of their French assets.

For French tax residents, the wealth tax base takes into account the market value of their worldwide assets. Similarly, for non- French tax residents, only debts related to French assets can be deducted from the calculation of net wealth, while for French tax residents all debts are taken into consideration. Wealth tax is applied over €760,000 and ranges from 0.55% to 1.8%

Capital gains tax
Upon the sale of a property, capital gains tax is applied at a fixed rate of 16% for people who are resident of another EU member state, 27% for people who reside in France, and 33.33% for those residing outside the EU, unless a tax treaty stipulates otherwise. However, after the fifth year of ownership, a reduction of 10% per annum is applied, which means that after owning the property for 15 years no CGT is payable. Non-residents are required to appoint a tax representative if their property is subject to CGT. The tax representative’s fees amount to approximately 1% of the sale price; however, these are deductible from capital gains.

Inheritance tax
On the demise of an owner whose property is taxable in France, the surviving heirs benefit from certain allowances, depending on their family link to the deceased. Firstly, the surviving spouse and children benefit from a general allowance of €50,000. Then, a specific allowance of €76,000 is applied to the surviving spouse’s taxable portion, and €50,000 is applied to the surviving child’s taxable portion. The heirs pay inheritance tax ranging from 5% to 40% on the net value of each portion. When the net value of the transfer is greater than €1,700,000, the higher inheritance tax rate of 40% is applied.

Income tax
Anyone who is domiciled in a country which has not signed a tax treaty with France, but who owns a property in France, is required to fill in a tax return and pay French personal income tax on the basis of three times the annual rental value of the property. If this person’s French-sourced income exceeds this amount, they must pay French personal income tax on the French-sourced income.

French taxation is complex and we recommend that you take appropriate professional advice to guide you through the maze.

• Professor Robert Anthony and Emmanuel Oberlechner, Anthony & Cie (international wealth management) Tel: 0033 (0)4 93 65 32 23 - www.antco.com - www.frenchpropertyloans.com

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