Owning a second home in France can be a dream, however, it is essential to understand the tax implications that come with it. France's real estate taxes and obligations can be complex, especially when income is generated from renting out your property. Additionally, the taxe d'habitation for second homes add another layer to consider. Let's do a deep dive into the essential taxes and obligations related to second homes in France.
Taxes for second homes in France: The basics
When it comes to taxes, France has some specific rules that differentiate between primary residences and second homes. The rule of thumb in France is simple: a property is always taxable in the country where it's located. Whether you live there full-time or not, property ownership in France makes you liable for several taxes, and if you generate income through rentals, you must pay income taxes in France on that revenue.
Property taxes (taxe foncière)
When it comes to property taxes in France, one key component is the taxe foncière on built properties. This tax is assessed annually based on the property's status as of January 1st of the tax year. The amount you owe is determined by multiplying the taxable base of your property, known as the valeur locative cadastrale, by the applicable tax rates set by local authorities.
The valeur locative cadastrale represents a theoretical annual rental income the owner could earn if the property were rented out. Each year, this value is updated to reflect market conditions, and an automatic 50% allowance, is applied to cover management costs, insurance, depreciation, maintenance and repairs. The specified tax rate is determined by the local council, reflecting the area's needs and budgetary requirements.
This system ensures that property taxes remain consistent regardless of whether the property is a primary residence or a second home.
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Taxe d'habitation: What you need to know
One of the major differences between owning a primary residence and a second home in France is the taxe d'habitation, it is similar to a council tax. While this tax has been largely phased out for primary residences, second homes are still subject to it.
Taxe d'habitation is calculated based on the rental value of the property and can vary significantly depending on where your home is located. For second homes, some local authorities have increased the tax rate to discourage part-time residents from leaving properties vacant for long periods.
- High-risks zones: Some municipalities in France have the authority to apply a surtax of up to 60% on the taxe d'habitation for second homes located in popular areas, especially in high-demand cities or coastal regions. This surtax is designed to encourage full-time residency and alleviate housing shortage.
- Exemptions: In some cases, you can apply for an exemption or reduction on the taxe d'habitation if your second home is rented out for most of the year or if you can prove you are unable to occupy the property due to work or other reasons.
Notably, there is no need to submit a declaration for the taxe d'habitation on second homes, simplifying the process for property owners.
Generating income from your second home: Taxes on rental income
If you are renting our your second home in France through platforms like Airbnb or long-term letting, be aware that rental income is taxable. The French tax authorities expect homeowners to declare rental income and pay taxes on it, even if they are foreign residents.
There are two ways your rental income can be taxed in France:
- Micro-BIC regime: This is a simplified tax regime for rental income that doesn't exceed 77,700 € per year. Under this regime, you can benefit from a 50% tax deduction before being taxed on the remaining income.
- Real regime (régime réel): If your rental income exceeds 77,700 €, you will be taxed under the standard tax regime, where you can deduct actual expenses related to the property (repairs, management fees, etc.) from your taxable income.
In both cases, you will be required to submit annual tax returns in France, even if you are not a resident of the country.
Additional considerations
If rent your property as a furnished tourist accommodation, you may also be subject to CFE (cotisation foncière des entreprises), a business tax applied to commercial rentals. Additionally, some municipalities may require you to register your property as a commercial rental, and failing to do so could result in fines.
Moreover, if your property generates rental income of more than 23,000 € per year, you could be classified as a professional landlord, subjecting you to higher taxes and additional social security contributions.
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To wrap it all up
Owning a second home in France is a fantastic way to enjoy the best of French life while also generating income, but make sure you are prepared for the tax responsibilities that come with it. By staying organised and informed, you will be able to make the most of your investment. If you have questions regarding taxes, but sure to book your consultation call with our expert.