Investing in, owning, or selling property in France is a significant financial undertaking, whether you’re relocating, downsizing, or managing an investment portfolio. This guide addresses frequently asked questions concerning property in France, focusing on tax, ownership, and succession planning as of 2025.
Pre-Purchase and Sale Considerations
Before embarking on any property transaction in France, it’s crucial to thoroughly assess the financial and legal implications. Many individuals underestimate the associated costs. If you are selling one property to buy another, the combined transaction expenses can significantly deplete your budget, potentially undermining the rationale for moving. Therefore, prior to purchasing a home, carefully consider its long-term suitability and location.
Furthermore, research the various ownership methods available in France. These choices can have profound impacts on your estate planning strategies and future inheritance tax liabilities, making it essential to establish the correct structure from the outset. Similarly, different types of marriage contracts can influence how assets, including property, are owned, which in turn affects succession and taxation. Professional guidance in these areas is highly recommended.
Capital Gains Tax in France
Capital Gains Tax (CGT) in France, known as impôt sur les plus-values, is levied on the profit generated from the sale of real estate or land.
- Principal Residence Exemption: Your main home is generally exempt from CGT, provided it is your principal residence at the time of sale. A grace period of 12 to 18 months typically applies if you have moved out but are actively selling, but you must ensure the property is not rented out during this period.
- Other Properties: When selling secondary residences or investment properties, the gains are subject to income tax and social charges.
- Income Tax: A flat rate of 19% is applied to the capital gain. Additionally, progressive surcharges ranging from 2% to 6% may apply to gains exceeding €50,000.
- Social Charges: These are levied at 17.2%. However, for individuals holding an S1 form (a certificate of entitlement to healthcare in another EEA country or Switzerland), this rate is reduced to 7.5%.
- Abatements for Duration of Ownership: Both income tax and social charges are progressively reduced the longer you own the property.
- Income Tax: Abatement begins after the fifth year of ownership. After the first five years, the taxable gain is reduced by 6% per year, culminating in a 4% reduction in the 22nd year, leading to full CGT exemption after 22 years of ownership.
- Social Charges: Abatement also begins after the fifth year but takes longer to achieve full exemption. The liability reduces by 1.65% per year from the sixth year, then accelerates to 9% per year from the 23rd to the 30th year, resulting in complete exemption after 30 years of ownership. The most significant reductions occur in the last seven years.
Tax on UK Property for French Residents
If you reside in France and own property in the UK, you are subject to capital gains tax assessments in both countries upon sale. The double taxation treaty between France and the UK prevents you from paying tax twice on the same gain. However, you will ultimately pay the higher of the two tax liabilities.
Regarding the UK liability, only gains realized since April 2015 are taxable for non-UK residents selling UK property. The UK Capital Gains Tax annual exempt amount has significantly decreased to £3,000. Future CGT reforms, especially under a new UK government, remain a possibility.
French Wealth Tax (IFI)
France’s wealth tax, Impôt sur la Fortune Immobilière (IFI), applies if the combined value of your household’s real estate assets exceeds €1,300,000. This threshold includes all residences (with a 30% reduction applied to the main home’s value), holiday homes, and investment properties, whether owned directly or indirectly.
- French Residents: If you are a tax resident in France, your worldwide property assets are generally included, though you may benefit from an exemption on property located outside France for your first five years of residence.
- Non-Residents: Non-residents are liable for IFI only on their property assets located within France.
- Tax Rates: If your combined real estate value exceeds the threshold, wealth tax rates begin at 0.5% for the portion of value between €800,000 and €1,300,000, progressively increasing to 1.5% for assets valued over €10,000,000. It is important to note that if you leave property to heirs living in France, their inheritance may push them into the wealth tax net.
Rental Income Taxation
Rental income in France is categorized into two main types:
- Revenus fonciers: Income derived from land or unfurnished lettings.
- Commercial Income: Income generated from furnished lettings, which are treated as commercial activities.
- A French tax accountant can provide guidance on the specific tax regimes applicable to your situation.
Taxable rental income is calculated on an ‘arising’ basis, meaning income and expenditure pertaining to the relevant year are taken into account. The net income is then taxed at the progressive scale rates of French income tax (for 2023 income, these rates started at 11% for income over €11,295 and rose to 45% for income over €177,106). Additionally, social charges of 17.2% apply, although this rate is reduced to 7.5% for S1 healthcare certificate holders.
French residents renting out property in the UK, and UK residents renting out French property, are liable for tax in both countries. While a tax credit is generally provided to prevent double taxation, the UK typically does not offer credits for French social charges.
Taxation of French Holiday Homes
Owners of French holiday homes are subject to specific annual local property taxes:
- Taxe d’habitation: Traditionally paid by the occupier, this tax has been largely phased out for main residences but remains payable on holiday homes.
- Taxe foncière: This is an annual land tax paid by the owner, regardless of who occupies the property.
Rates for both Taxe d’habitation and Taxe foncière vary significantly across France depending on the municipality.
Crucially, holiday homes do not benefit from the principal residence exemptions or deductions applied to capital gains tax, wealth tax, or succession taxes. Any income generated from renting out your holiday home, or any gains made upon its sale, will be assessed for tax in both France and the UK (for UK residents). You will pay the higher amount of tax due across both jurisdictions. Furthermore, upon your death, your beneficiaries will be subject to both French succession rules and UK inheritance tax rules.
French Succession Tax and Law
Succession Tax:
- Your main home is subject to French succession tax for any beneficiary other than your spouse or civil partner (PACS partner). If the property is also the main home of the beneficiary, they may receive a 20% discount on its value for tax purposes. However, spouses and PACS partners are already exempt from French succession tax on inheritances, so this discount primarily benefits other heirs.
- Beneficiary tax liability varies significantly based on their relationship to the deceased. Rates start at 5% for direct descendants (children) but can reach a flat 60% for unrelated beneficiaries. Allowances also vary widely, ranging from €100,000 for direct descendants down to just €1,594 for non-relatives.
- A strategy involving usufruct (usufruit) allows you to gift the bare ownership (nue-propriété) of assets to children while retaining a lifetime right to live in the property and/or receive income from it. This can help to maximize allowances and potentially reduce tax rates, but it requires careful legal and tax advice to determine its suitability.
Succession Law:
- French succession law imposes forced heirship rules, protecting children as heirs. They are typically entitled to inherit a fixed proportion of your estate, usually between 50% and 75%, depending on the number of children.
- This means you can only freely dispose of the “freely disposable” part of your estate. While a surviving spouse or PACS partner has certain rights, including often the right to continue living in a jointly owned property, their inheritance share of the “freely disposable” part may be limited if there are protected heirs.
- EU Succession Regulation (Brussels IV): This regulation allows individuals to elect for their national succession law (e.g., UK law) to apply to their estate instead of the law of the country where they are habitually resident. However, a 2021 French law has created a potential conflict: if assets located in France pass under the provisions of a country without forced heirship (like England and Wales), protected heirs can still claim the share they would be entitled to under French succession law. The European Commission is currently reviewing this potential breach of EU rules.
- Various strategies exist to align your estate distribution with your wishes, such as specific matrimonial regimes or the insertion of a tontine clause into the property conveyance when purchasing. Professional advice is essential to navigate these complexities.
Expanding Your Property Portfolio
If you are considering expanding your French property portfolio, carefully weigh the tax implications of owning real estate investments versus holding capital investments. Currently, only real estate assets are subject to wealth tax. Even if this were to change in the future, compliant investment structures are available in France that can significantly reduce taxation on savings and other capital investments.
It’s important to note that rental income from property is not eligible for the flat 30% tax (including social charges, or 20.3% for S1 holders) that applies to other forms of investment income. Furthermore, any property owned in the UK by a French tax resident falls under both French succession tax and UK inheritance tax rules.
From an estate planning perspective, capital investments often offer greater control and flexibility compared to property. French savings vehicles like assurance-vie policies, for example, typically stand outside French succession law, allowing assets to pass directly to nominated beneficiaries, simplifying the inheritance process and potentially reducing costs.
Beyond tax and succession, remember that property is an illiquid asset. If you need to release funds, you must sell the entire investment, and finding a buyer at the right price and time can be challenging. For investment purposes, predicting long-term returns from a single property is difficult. A well-diversified portfolio typically spreads risk across various asset types, regions, and market sectors. Achieving this level of diversification solely through property investment, especially given high purchase costs, is challenging unless you invest in real estate funds.
While tax implications might not be your primary concern when buying your main home, they become highly relevant for additional properties and investment planning. Succession issues are always critical, even for your primary residence. Understanding these frameworks now can empower you to take proactive steps to simplify the inheritance process and enhance tax efficiency for your loved ones.
