Let’s talk about something that’s annoying, but that you need to think about when considering a property purchase: taxation!
Your first tax step will take place with your notary, on the day of your purchase.
On that day, you’ll pay the notary the purchase price of the apartment, but you’ll also pay a tax: this is the transfer tax.
These costs, which are mainly for the public treasury, are calculated according to the type of property, its location and characteristics, and your method of financing.
On average, for the purchase of an older property, the transfer costs amount to 7.5% of the sale price, whereas for new property, the transfer costs are 3%.
The same rate applies to properties bought off-plan, if the first resale occurs within 5 years.
It is possible to reduce the total amount of the transfer costs by deducting the value of the furniture, such as kitchen equipment for example, upon presentation of supporting documents.
But be careful, deducting the agency fees is now regarded as tax evasion!
Once you’re a home-owner, you’ll be liable for property tax. When signing the deed of sale with your notary, you’ll pay it on a pro rata basis for the current year, and then annually to the tax authorities. This is a local tax for the commune or the department. This tax includes the household waste tax, which is passed on to the tenant.
Housing tax is also a local tax, intended for the commune. It is due in full by the occupant of the dwelling on 1 January for the calendar year. It includes the contribution to public broadcasting.
Since 2018, a new system has been put in place to gradually phase out 80% of the population from having to pay this tax.
You can already benefit from an abatement or relief depending on your lifestyle or the condition of your resources.
What taxes are there when I put my property up for rent?
If you decide to rent out your property, you must declare your rental income. The taxation depends on the type of rental: empty or furnished.
If you rent out your apartment without any furniture, your rental income is to be declared with your other income in the “property income” category.
The land tenure regime
If your gross rental income is less than €15,000 a year, you’ll depend on the so-called “land tenure” regime. You get an automatic 30% flat abatement, and your property income is added to your other income to be subject to income tax and social security contributions, without any additional declarations to be made.
The direct tax regime
If your gross rental income is greater than €15,000, or if you choose not to opt for the “land tenure” regime, you must file an independent property income return, the so-called “direct tax regime”. Your declared income then corresponds to the difference between the amount of revenue collected and the total actual expenses deductible, upon presentation of supporting documents. You can deduct administration and management fees, some works, taxes, insurance premiums, provisions for co-ownership fees and loan interest.
Since September 2015, an apartment is considered as furnished if it includes at least the items of furniture as listed by decree: a bed, duvet, curtains, hotplates, oven or microwave oven, refrigerator with freezer space, crockery for meals, cooking utensils, a table, chairs, storage shelves, lighting fixtures and suitable housekeeping equipment for the characteristics of the dwelling.
In terms of taxation, a furnished rental is considered as a provision of services. It is therefore necessary to file an independent tax return for “business profits” (BIC).
The micro BIC regime
If your property income from furnished rentals is less than €70,000 in revenue per year, you benefit from the micro regime.
That is to say that you declare everything you have received: rents, the charges invoiced to the tenant and the provisions for fees. An automatic 50% flat abatement applies.
The direct tax regime
If you hold your property in joint ownership, if you wish to deduct the exact amount of your expenses or amortise your property, or if your property income exceeds the limits for applying the micro BIC regime, then the direct tax regime will apply.
The direct tax regime involves keeping accounts in accordance with the French Commercial Code and the general accounting plan. It is recommended to seek professional assistance.
Non-professional renters of furnished property
If your annual income does not exceed €23,000 or other income from your tax home, then you can be considered as a “non-professional renter of furnished property”.
Activity as a non-professional renter of furnished property requires you to register the Registry of the Commercial Court, in order to declare the activity and obtain a SIRET number.
Income from non-professional furnished rentals locations, declared according to the micro regime or the direct tax regime, will automatically be subject to social security contributions. You are liable for a Property Investment Contribution and, depending on your situation, the contribution on the added value of companies and VAT.
Warning : furnished rentals are to be avoided if the property is held by a non-trading family real estate company subject to income tax, because this activity is considered a commercial activity and the non-trading real estate company will then be automatically subject to corporation tax. To avoid this nasty surprise, always rent the property out empty if it is held by a non-trading real estate company.
There is an annual tax sanctioning high rents for micro-dwellings with a living area of less than 14m²
This tax concerns dwellings located in so-called “tense” areas where there is an imbalance between supply and demand in the property market; like in Paris for example.
This applies to all types of rentals (empty or furnished) of more than 9 months.
A rent is considered high if the amount of the monthly rent, excluding charges, exceeds €41.64 per m² (reference rent for 2017).
The tax is a percentage of the gross annual rent calculated according to the difference between the rent received and the reference rent.
Also bear in mind that when you sell your property, you will be subject to tax on real estate gains.
Until now the property constituting the principal residence of the seller is exempt from this tax.
Investing in bricks is a safe bet. This allows you to build your assets, which you can then sell to expand, rent out or pass on to your children. Don’t hesitate to contact French Touch for advice and assistance when you purchase your property.