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Taxation
Considerations
Purchasing
real estate property in
France
raises a number of taxation considerations.
This article will consider the possible taxation implications that
may arise by looking at the principal types of taxes concerned and will
provide some preliminary information in relation to each one.
INCOME
TAX
If
you rent out your French property then you will be liable to pay income
tax in
France
regardless of your place of residence for taxation
purposes. You will thus be
required to make an annual income tax declaration to the French
authorities and will be required to pay any tax due in
France
. You may
be required to declare the income earned and the tax paid to the fiscal
authorities of your place of residence.
How any double taxation issue will be treated will depend upon the
terms of the double taxation treaty between your country of residence and
France
, if any such exists.
Please note that certain countries do not have double taxation
treaties with
France
and thus the taxation treatment of any income, even if
the property is not actually rented out but is a second home, is more
complex and onerous.
If
you are moving permanently to France and you will be resident there for
more than 183 days out of the year or you are there for less time out of
the year but France constitutes the centre of your economic interests, for
example, then you will be subject to French income tax on all of your
income, even that earned outside of France.
It may be that you are taxed at source on income generated in
certain countries but you are still required to declare the income and the
tax paid to the French fiscal authorities.
The treatment of this will again depend upon the double taxation
treaty between the two countries, if there is any.
CAPITAL
GAINS TAX
This
is due upon the sale of a property that is not your principal residence
(note that if you claim that a property is your principal residence you
may be required to prove this). It
is due upon the appreciation in value of the property from the time that
you purchased it. There are a
number of expenses and costs that can be offset, including renovation work
and original purchase costs, so make sure that you keep an accurate record
as well as all invoices and receipts for work done.
If you are not resident in
France
then the tax
will be payable at 33.33%. If
you are French resident then it will be payable as part of your income tax
declaration. Once the property
has been owned for two years or more, there is an annual relief of 5%
deducted from the appreciation in value, meaning that after owning the
property for 22 years, the relief is 100% and no tax is payable.
The calculation of the tax payable, for a resident, is more
advantageous once the property has been held for more than two years.
There are other possible reliefs and exonerations but these will
depend very much on one’s personal situation.
INHERITANCE
TAX
This
tax is payable upon the inheritance of the property following the death of
an owner. In
France
, inheritance tax is calculated on the basis of the
amount that each individual beneficiary receives and how he or she is
related to the deceased owner. Therefore,
the tax payable will be calculated once the property has been shared
between the inheritors. Each
inheritor will be liable to pay an amount of tax in accordance with the
amount (and type) of the share that they receive and it will be calculated
on the grounds of the degree of relationship to the deceased.
Children benefit from a more generous tax calculation than siblings
and any property passing to people who are not blood relatives is subject
to very high inheritance tax (at a rate of 60%).
It is possible to leave the property to a charity but you should
ensure that the chosen charity is registered and recognised in
France
to avoid adverse inheritance tax implications.
15/04/2003
- Issue of the week
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