Tax & Legal Aspects of Buying a Pied à Terre in France

Buying real estate in France: Non‑residents should be aware of the tax and legal consequences before taking the plunge. This article will provide a brief outline of the steps involved in acquiring French real estate as a second home (“Pied à terre”), as well as the different applicable taxes.

Step 1: Purchasing Property

Locating the perfect “Pied à terre” may require the use of a real estate agent (“agent immobilier”) or a real estate transactions Lawyer (“Avocat Mandataire en Transactions Immobilières”). Our lawyers have the accreditation to act as Agent and can assist you from the beginning of your search all the way to the closing.

Once the purchaser has found the ideal property and the parties agree on the purchase price, the buyer and the seller generally sign a preliminary contract called a “Promesse de vente” or a “Compromis de vente.” At that time, the buyer customarily makes a deposit of 5 percent to 10 percent of the purchase price.

A legal professional called “Notaire” will prepare all necessary legal documents related to the conveyancing of real properties and conducts land registry searches. Upon completion of the required process, the parties will sign the final deed of sale or the “Acte de vente”.

In addition to paying the purchase price, the buyer generally bears the legal costs and expenses incurred by the transfer of the French property, which will be paid to the notaire before completion of the sale. Costs are generally about 7‑8% (existing property) or 3‑4% (new built property) of the purchase price, which include transfer duty payable to the French government, stamp duty, land registry charges as well as the Notaire’s fee.

Those rates are broadly the same throughout France. In addition, real estate agents generally charge a commission which ranges between 5‑10% of the net purchase price. This commission is usually paid by the buyer but this can be negotiated with the seller.

Step 2: Understanding (and paying) French Taxes

Non‑residents are subject to tax on their French source of income and on their assets located in France, such as real estate. Your taxation will depend on whether you receive property (rental) income or not, whether you are buying in your own name or through an entity etc. 

1. “Taxe Foncière”: French Land Tax

Taxe Foncière is the French land tax. It is a local tax which must be paid by the owner (landlord) whether the property is rented out, occupied or whether there are no buildings at all does not matter. The amount that is due is determined by the local authorities. 

At the end of August or the beginning of September, the owner receives a notice from the tax authorities indicating the amount of tax due and the deadline for its payment.

2. “Impôt sur le Revenu” : French Income Tax 

Even if the owner is not a French resident, rental income which derives from the French property will be taxed in France. Taxpayers must generally file a return online before May 25^th each year. French income tax is generally calculated by applying the progressive income tax rate. The applicable tax rate applicable for non‑residents is a minimum tax rate of 20% unless the taxpayer can show that the rate would be lower if his or her total worldwide income were reported to and taxed by the French tax authorities. Late returns generally give rise to penalties.

In addition to Income Tax, landlords must also pay the following social charges to the French government:

• Prélèvement Social (PSOL): 7.5%
• Contribution Sociale Généralisée (CSG): 9.2%
• Contribution au remboursement de la dette sociale (CRDS): 0.5%

NB: Property owners affiliated to a compulsory social security scheme other than the French one within an EEA country (European Union, Iceland, Norway, Liechtenstein), Switzerland and United Kingdom are exempt from CSG and CRDS social contributions.

3. “Impôt sur la Fortune Immobilière” : French Property Wealth Tax

Individuals residing outside of France are subject to wealth tax on their taxable properties or shares of companies (French or foreign) owning property located in France which value exceeds €1’300’000.

Taxation will be calculated according to a progressive valuation table with applicable tax rates for each bracket ranging between 0.5-1.5%.

The first €800,000 is exempt from tax. 

The applicable tax rates for 2022 are the following:

A prospective buyer should always seek professional legal advice prior to acquiring French real estate. Careful consideration should be given to the impact of applicable taxes like the French property wealth tax, treatment of your tax residency, estate planning and applicable treaties amongst others. The most appropriate form of ownership for acquiring real property in France depends on each particular set of circumstances. We will shortly publish a more detailed article on this subject.

In conclusion, with thorough tax planning, you will surely experience the pleasure of buying your freshly baked baguette very soon!

What next?

Next article: Tax and legal aspects of selling, gifting, and inheriting assets in France