Many Brits dream of owning a holiday rental property in France. You can enjoy the best of both worlds by visiting your chalet, villa, or apartment at your leisure and earning a profit when it’s empty – so it’s easy to see why.
But, before you invest in a second home in France and rent it out, you should understand the associated tax implications. This is particularly important since the impact of potential tax benefit restrictions in various coastal regions of France in 2023. As a result, this has reinforced the appeal of Alpine locations and “up-and-coming” mountain locations.
In this post, we outline:
- The different taxes to be paid by non-French residents
- How taxes are calculated
- The impact of Brexit
- Taxes associated with holiday rental properties
- Tax reduction schemes for holiday rental properties
Read on for an introduction to the tax implications of owning a second home in France.
(The information here is a general guide only, which does not take into account your personal circumstances, is not intended to be tax advice and should not be relied upon as such. If you have any questions about taxes, we suggest that you consult your tax adviser or local tax authorities. Please contact us if you would like the contact details of a tax adviser who specialises in the vacation rental industry. Please note that we do not update this information in real-time, so you should check and confirm if the laws, tax rates or procedures have changed recently.)
Understanding tax residency
First of all, you need to clarify whether or not you are a tax resident or if you have a “domicile fiscal” status in France.
According to Article 4B of the Code Général des Impôts (CGI), you are classed as a tax resident in France if:
- Your main residence is in France.
- You have a professional activity in France (employed or self-employed).
- Your centre of economic interests is in France (investments, business etc).
Another way to determine residency in France is if you spend more than 183 days (6 months) on French soil throughout the tax year.
The UK Statutory Residence Test allows you to work out your residence status for an individual tax year, taking into account the amount of time you spend in the UK and where you work.
Brits also benefit from the France/UK Double Taxation Treaty which significantly reduces the risk of having to pay tax in both the UK and France simultaneously.
Tax implications of owning a second home in France
There are a number of different taxes that, as an owner of a second home in France, you are liable to pay.
In this section, we’re going to explain the following:
- Taxe foncière (property tax)
- Taxe d’habitation (council tax)
- Income tax
- Capital gains
- Wealth tax (IFI)
- Rental property taxes
Taxe foncière (property tax)
What is taxe foncière?
Taxe foncière (property tax) is an annual tax payable by all property owners. Along with taxe d’habitation, they are the French equivalent of council tax.
It is based on the value of the property and the proceeds are used to finance local public services (road maintenance, pavements, public lighting and green spaces etc). It is paid directly to the Mairie (town hall) of your commune.
Who is liable for taxe foncière?
Taxe foncière is payable by the owners of the property on January 1 every year. If you buy your property during the year, you will have to pay a proportion of the property tax for the number of months in that year that you have owned it.
Tenants of a property are not affected by this tax, which is not related to the use of the property but to its nature and value.
How is it calculated?
This local tax is calculated on the basis of the rental value of the property. This corresponds to the annual income that the property would generate if it were rented out.
A tax percentage, voted for by the local authorities, is then applied to this figure. This figure is different for each municipality, especially in the Alpine region.
As the basis for calculating the property tax is the rental value of the property, there are many factors that can affect it, such as the features of the property, its size and its capacity.
Owners are required to declare any changes to their accommodation, such as extensions or the addition of certain equipment, to the local council so that the tax can be recalculated.
Example
We’ve taken an example from one of our OVO Network partner properties with the following characteristics:
- Location: Manigod, Aravis
- Capacity: 8
- Bedrooms: 5
- Bathrooms: 3
- Floor area: 180m2
- Classification: 4*
Average annual taxe foncière (based on the year 2022): 298,00€.
Do note, that this number is subjective and can change depending on the points in the following section…
Which factors affect the taxe foncière rate?
Here are some examples of the features that can affect the cost of property tax:
- The value of the property.
- The size of the plot of land on which it sits.
- The materials used in its construction.
- The facilities (swimming pool, garage, etc).
- Any renovation work carried out.
How can you reduce the cost of taxe foncière?
Some local authorities may decide to grant total or partial exemption from property tax for a period of three years if you have carried out energy-saving work on your property.
However, certain conditions must be met:
- Your home must have been built before January 1, 1989.
- The amount of your energy renovation expenses must exceed 10,000€ per dwelling in the year preceding the year in which you apply for the exemption. Alternatively, it’s 15,000€ per dwelling if the expenses were paid in the three years preceding the year in which the exemption applies.
How do you pay taxe foncière?
Online from your personal account on the impots.gouv.fr website, or using the online payment system.
Taxe d’habitation
What is taxe d’habitation?
Taxe d’habitation (French residence tax or housing tax) is a local tax based on your property’s characteristics, location and your personal situation. As we mentioned above, combined with the taxe foncière, it’s the French equivalent of council tax.
Who is affected by taxe d’habitation?
Taxe d’habitation is payable by the person who lives in the property as their principal residence on January 1 of the current year. This means that the tenant or a free occupant of the property may be liable.
In addition, it applies whether you use the property for your principal residence or your second home. So if you buy a property during the year, you will have to part of the taxe d’habitation in proportion to the number of months you occupy it.
The French government’s 2018 reforms of taxe d’habitation provides for a gradual abolition of the tax for main residences. Thus in 2020, about 80% of households whose taxable income was below a certain threshold were exempt.
For the remaining 20%, there was a 30% reduction in 2021. It was 65% in 2022 and should disappear completely in 2023, when no household should pay taxe d’habitation on their main residence.
Please note, however, that taxe d’habitation will continue to apply to second homes and vacant properties. In some areas including Lyon, Paris, Guérande (Loire-Atlantique), Chessy (Seine-et-Marne), Ferney-Voltaire (Ain), Villefranche-sur-Mer (Alpes-Maritimes), Arles (Bouches-du-Rhône) and Marseille, there is also a surcharge of 60%.
If you rent out your second home or chalet, holiday tenants are not liable for taxe d’habitation, but they must pay taxe de séjour, or tourist tax. We’ll come onto that later in this article.
How is taxe d’habitation calculated?
Taxe d’habitation is levied for the benefit of local authorities, which vote on the tax level.
It is calculated according to the value of the property, which is determined by the tax authorities. In addition to this, the tax rate is set each year by the commune, and varies from one to the next.
Example
We’ve taken an example from one of our OVO Network partner properties with the following characteristics:
- Location: Manigod, Aravis
- Capacity: 8
- Bedrooms: 5
- Bathrooms: 3
- Floor area: 180m2
- Classification: 4*
Average annual taxe d’habitation (based on the year 2022): 1949,00€.
Do note, that this number is subjective and can change depending on the points in the following section…
Which factors affect the cost of taxe d’habitation?
The amount varies according to the features of your property (size, level of comfort, etc) and may differ depending on your personal situation on January 1 of the tax year.
Your income, the composition of your household, etc are taken into account when calculating the tax.
Who can obtain a reduction in taxe d’habitation?
Your reduction or rebate will depend on your taxable income and the size of your family. For more information on taxe d’habitation levels and to check if you are eligible for a reduction, consult this reference table.
How to pay your taxe d’habitation
Click here for a detailed guide to paying your taxe d’habitation.
Income tax
What is income tax?
Income tax is a rate charged based on the income you receive from your business activity.
Do second homeowners pay income tax?
If you own a second home in France which you rent out and receive an income for, you will be obliged to complete a French tax return, whether you are a resident or not.
As we mentioned earlier, Brits benefit from the France/UK Double Taxation Treaty, which means you will need to declare your income both in the UK and in France.
How is income tax calculated?
The following rates are calculated by fiscal household:
- Up to 10,777€: 0% tax rate
- From 10,778€ to 27,478€: 11% tax rate
- From 27,479€ to 78,570€: 30% tax rate
- From 78,571€ to 168,994€: 41% tax rate
- More than 168,994€: 45% tax rate
Your net income from a property rental business will be taxed at the scale rates of income tax.
Income tax deductions
There are certain circumstances in which you can obtain a reduction on your income tax. For the comprehensive list, visit the government guide or speak to your accountant.
How to pay your income tax
Visit this guide to learn how to complete your French tax return.
Capital gains tax in France on second homes
What is capital gains tax?
Capital Gains Tax or “impôt sur les plus value” applies to any profit earned when you sell an asset which has increased in value, so it is something to consider if you are thinking of selling your property.
Who has to pay capital gains tax?
Capital gains tax is applicable to the sale of second homes in France or worldwide property.
How is it calculated?
It’s set at a flat rate of 19%, however social charges on capital gains will also increase the amount you have to pay. However, it does not apply if you have owned the property for more than 22 years or if it sells for less than 15,000€. Find the full list of exemptions here.
Social charges on French investments and capital gains
The maximum amount of social charges applied to investments and capital gains is 17.2%. It is calculated based on the following:
- CSG (Contribution sociale généralisée or Generalized social contribution) –9.2%/0%
- CRDS (Contribution pour le remboursement de la dette sociale or Contribution to the repayment of social debt) – 0.5%/0%
- Prélèvement de Solidarité (Solidarity tax) – 7.5%
Whether or not you are a French resident, you will be subject to the same social charges. However, the CSG (Generalized social contribution) and CRDS (Contribution to the repayment of social debt) do not apply to non-residents who are associated with another EU/EEA social security system.
How does Brexit impact social charges for UK second homeowners in France?
In January 2021, it was stated that UK residents were no longer entitled to lower social charges on their rental income and capital gains from their French property (7.5 instead of 17.2%).
However, since February 2022, UK residents will also be exempt from the CSG (Generalized social contribution) and CRDS (Contribution to the repayment of social debt) if:
- The homeowner is a legal UK national.
- You’re associated with the British social security system (National Insurance).
- You do not depend on the French social security system.
How to pay your capital gains tax in France
When you sell a property in France, all sales will go through a notaire (a government-appointed lawyer).
The notaire will calculate and withhold the required taxes. They will then ensure that all payments (taxes and social charges) are made on your behalf.
Wealth tax (IFI)
What is wealth tax?
Wealth tax or “Impôt sur la fortune immobilière” (IFI) is based on the assets of a household, as opposed to income.
Who pays it?
The IFI applies to:
- People who are tax registered in France.
- People who are tax registered abroad but own a property in France.
- People who have lived abroad and then return to France are subject throughout the 5 years following the date of their return.
It applies to the following assets:
- Houses, apartments and outbuildings (garages, parking spaces, cellars) for personal use or rental purposes.
- Buildings which are classified as historical monuments.
- Buildings that are under construction.
- Land including building plots and agricultural land.
- Buildings or parts of buildings which are owned indirectly through company shares.
- Property and real estate rights that do not meet the conditions for being considered as professional property.
How is the IFI calculated?
Wealth tax is charged to all households who have residency in France and own worldwide real estate assets worth over 1.3 million euros annually on 1 January. For UK residents, the tax is payable if you own French property in excess of the same value.
Wealth tax is calculated on combined household assets (spouses, partners and children under 18) and the rates are as follows:
| Sum total of household wealth | Wealth tax rate |
| 0 – €800,000 | 0% |
| €800,000 – €1.3 million | 0.5% |
| €1.3 million – €2.57 m | 0.7% |
| €2.57m – €5m | 1% |
| €5m – €10m | 1.25% |
| €10m or more | 1.5% |
Exemptions
Professional real estate is mainly exempt from the IFI, including furnished professional rentals.
How to pay the IFI
Online through your personal account on the impots.gouv.fr website, or using the online payment system.
Holiday rental tax in France
Taxe de séjour (tourist tax)
There are some additional taxes which owners of holiday rental properties will be expected to pay/collect.
What is the taxe de séjour?
Most communes ask holiday guests staying in the mountains for a financial contribution in the form of taxe de séjour, or holiday tax.
This is generally used to finance the development of local tourism, events or the maintenance of green spaces.
Who has to pay taxe de séjour?
Guests staying in a tourist residence, a furnished holiday home or a holiday rental are required to pay a tourist tax at the end of their booking.
This means that the guests who stay in your property will have to pay you a tourist tax, calculated in advance, according to the number of guests, the length of stay and the quality of your property.
The taxe de séjour is payable to the owner of the accommodation or to the booking service acting on behalf of them. However, the payment of this tax is often included in the price of the holiday rental.
How is the taxe de séjour calculated?
The amount of taxe de séjour must be displayed at the property and on the bill provided to guests. It must also be available for consultation at the Mairie or the local tourist office.
The amounts can vary according to the commune where the guest is staying. Some communes charge a single amount and others do not charge a tourist tax.
In general, there is a capped rate scale – the higher the official classification of your property, the higher the tax. Rates can vary between 0.20€ and 4.20€ per adult per night.
To find out the rates of tourist tax by commune, use the French government’s search tool.
Who is exempt from taxe de séjour?
- Anyone aged under 18.
- Seasonal workers in the commune.
- Anyone in emergency accommodation or temporary housing.
- A guest who pays rent below the amount set by the commune.
How to pay the taxe de séjour
There are two ways to pay the taxe de séjour :
- It can be included in the price of the stay and paid online before arrival.
- Owners who manage their property or third-party guest managers can collect the tourist tax upon arrival.
Mandatory rental taxes and their exemptions
When a property is used for rental purposes, the taxes are not the same as those levied on one for personal use. In this case, the owners are considered to be professionals or businesses and therefore they must pay additional taxes.
Business property tax (CFE)
Renting out furnished property is a professional commercial activity that is subject to the business property tax or “la cotisation foncière des entreprises”. This applies whether you are a company or an individual.
However, there are some exemptions, particularly according to your turnover and if your rental property is part of your main home in specific cases. Click here to find out more about CFE exemptions.
Tax on vacant properties
In some areas, owners of rental properties must also pay a tax on vacant accommodation. This tax is intended to reduce the number of vacant properties and can be quite a significant sum.
Click here to find out more about tax on vacant properties.
Try the simulator on the Public Service portal to find out which zone your property falls into.
Tax saving schemes
The French leaseback and Para-Hotelier schemes
What is the French leaseback scheme?
The leaseback scheme was introduced by the French government in 1967 to encourage investment in tourist destinations throughout France. This was to be done by increasing the supply of quality accommodation. VAT refunded at the point of purchase would be recouped from taxation on future rental revenue.
Buyers of a leaseback property are entitled to a refund of the 20% VAT due on a property purchase in France. In most cases, the developer will advance the 20% VAT for the buyer when the purchase completes.
This means the buyer doesn’t pay the VAT ordinarily due, making the purchase considerably cheaper. It should be noted that all property owners in France are required to pay taxe foncière, so this is still payable by the buyer.
What is the French Para-Hotelier scheme?
The “Para-Hotelier” tax scheme is less well-known than the leaseback scheme. However, it also allows a property owner to reclaim the 20% VAT element on building costs or the new build purchase price of a chalet or apartment.
The Para-Hotelier scheme can be used where you have purchased an off-plan property or a completed new build, are carrying out your own building project or are undertaking a major renovation using the shell of an existing property.
Our free guide to the French leaseback and Para-Hotelier schemes
To understand the advantages, disadvantages and legal requirements of these two property investment schemes, download our free guide by clicking on the link below:
Investing in energy-efficient equipment to reduce taxes
Investing in energy-efficient equipment can reduce the rental value of the property and the property tax. Examples of such equipment include solar panels, a heat pump or an efficient heating system.
Before starting the work, check with your local Mairie to see if the planned work will qualify for an exemption.
If you carry out renovation or alterations at your rental property, declare them to the tax authorities – such changes may result in an increase in the rental value of the home.
We hope you found this guide helpful. The tax system in France can be overwhelming, that’s why we always recommend you work closely with an English-speaking accountant who can advise you on your specific needs.
If you own a chalet in the Alps and want to find a complete business solution for your rentals, then you can find out more about our offering and try our short-term rental income calculator here. And don’t forget to subscribe to our newsletter and be the first to receive tips on running your holiday rental business, expert opinions and the latest industry news.
If you found this guide useful, we also recommend the following resources:
