Individuals With Property in France Will Feel the Heat This Fall

Resident owners of property in France must have broken out in a cold sweat when they received their tax notice this autumn, as property tax (taxe foncière) has risen sharply—sometimes by double digits.

The recent tax story had been too good to be true. In 2017, President Emmanuel Macron introduced the progressive abolition of another real estate tax, the dwelling tax (taxe d’habitation)—one of France’s oldest taxes on the enjoyment of a dwelling—dating back to the French Revolution and last reformed in the 1970s. The motivation was appealing—reducing the tax pressure on the French middle classes.

So how did the reform of dwelling tax, designed to reduce the tax burden, lead to such a tax rise?

There are several reasons:

The property tax calculation has increased each year in line with overall inflation. Given this year’s inflation rate compared with last year’s, property tax was automatically increased by 7.1%.
Phasing out dwelling tax on main residences has led to a significant reduction in local authorities’ budgets. A compensation mechanism was put in place, but many municipalities found it insufficient and therefore turned to property tax to make up the shortfall.
Property tax on second homes can be increased by a special surcharge.

As a result, property tax rates are now skyrocketing in French municipalities. It’s expected that tax bills will be the most expensive in the last 30 years, with the largest increase occurring in Paris in an estimated 62.7% rise—despite the City of Lights having one of the lowest property tax rates in France.

What About Nonresident Taxpayers?

As has happened previously in France, nonresidents haven’t been favored by the tax reform.

First, nonresident taxpayers don’t benefit from the abolition of dwelling tax, as it only affects main residences. A nonresident individual can’t, by definition, claim that their French property is their main residence unless they wish to relocate, with all the French tax consequences such a decision entails.

Dwelling tax is due on an annual basis from any individual having the disposal of a French dwelling on Jan. 1, regardless of whether they are the owner, tenant, or free occupant. (Vacant premises remain subject to a specific tax.) Dwelling tax is assessed on the deemed rental value, as determined by the local land registry, to which various coefficients are applied.

Second, like any other owner, nonresident owners of French real estate are subject to property tax, due on a yearly basis, on both developed and undeveloped property.

The tax on developed property is assessed on the notional rental value of the property, determined by a complex formula taking into account surface area and weighted by coefficients depending on the administrative category of the property (whether it’s an ordinary or luxury building) and its features. This value isn’t fixed and may change over time—the addition of a new room or swimming pool would increase the bill, for example—assuming improvements were reported to the tax authorities. The tax is determined by multiplying 50% of the rental value by yearly rates determined by each local authority.

The tax on undeveloped property mainly applies to privately owned land or forests. It’s also assessed on the notional rental value of the property and is determined by multiplying 80% of such rental value by coefficients set by the local authorities.

Challenging the Bills

Homeowners have already created claims against the property tax rate increase in several municipalities, including Paris.

It’s also possible to challenge a 2023 tax invoice if a mistake in calculation is suspected. If the property characteristics used to determine rental value don’t correspond to those indicated in the filed property tax return, the tax authorities can be asked to double check their calculations.

Other exemptions may also apply—for example, new buildings are temporarily exempt from property tax.

Additional Filing Duties

Both resident and nonresident owners were required to fulfill an additional burdensome filing duty this summer, when they had to declare the detailed characteristics of their real estate assets and the names of occupants on Jan. 1.

The filing process encountered various technical problems, leading landowners to revert to old-school telephone calls to finalize their declarations. More than 94,000 complaints about filing difficulties were recorded over the phone by the tax authorities on a single day in June.

Future Inflation?

The new filing duty may lead to further inflation of real estate taxes in future, as all 2023 tax invoices were still based on real estate registered values determined in 1974. This summer’s declarations of characteristics and occupation of real estate assets may enable the administration to update and increase these values.

All in all, it’s probably of little comfort to taxpayers that the special TV tax of around 138 euros ($144) per household was abolished last year.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Dimitar Hadjiveltchev is partner and Guillaume Debiève is an associate with CMS France.