Val d’Isère in ski season
Unsure on whether to buy a new-build or an existing French property? Here are some big tax differences:
Sales taxes (TVA/VAT)
There is no sales tax on existing properties in France, which is normal because it is simply a transfer of assets rather than the sale of a manufactured product or service. There are transaction costs (notary fees), which I explain later in this article.
However, for new-build properties, the situation is different, because you are purchasing something that has been built for you. Therefore, the normal sales tax rate of 20% applies. This sales tax is a form of VAT (value added tax), which is known as TVA in French (taxe sur la valeur ajoutée).
However, a reduced VAT rate of 5.5% applies in the following circumstances:
- The property must be located in a a low-income urban area designated for renovation, you can view a map of these areas here.
- The owners of the property must not have income (revenu fiscal de référence) that exceeds 11% of the income limit of the prêt locatif social (PLS), therefore for a single person in the Paris region, it must not exceed €35,088 in 2022. For outside of Paris, the limit for a single person in 2022 is €30,504. The limit applies to your income from two years ago because the previous year’s tax return is not available until the third quarter of each year. The table of income limits can be viewed here.
- The property must be the owner’s main residence and they must occupy the property for at least eight months for per and for a minimum of 10 years.
However, the VAT (TVA) can be claimed back in the case of eligible furnished property buy-to-let investments, this is known as “la loi Censi-Bouvard” or the regimes “location meublée non-professionnelle” (LMNP) and “location meublée professionnelle” (LMP).
Notary fees
Although new-build properties are subject to TVA (VAT), the notary charges are lower. A notary (notaire in French) is in independent legal professional who represents the French state and processes your property purchase. The notary fees for existing properties represent between 7 and 8% of the property price, but only a small amount of this actually goes to the notaire as the rest is paid directly to the government, they are a form of tax on property purchases and these are paid by the buyer.
However, the notary charges for a new-build property are between 2 and 3% of the property price. To give you an example, here are the approximate charges in 2024 for a purchase worth €500,000 in Paris (without a mortgage) for an existing property and for a new-build property
Property type: new-build
Property price: €500,000
Total notary fees and taxes: €10,400 (source: paris.notaires.fr)
Percentage of the property price: 2.08%
Property type: existing property
Property price: €500,000
Total notary fees and taxes: €36,400 (source: paris.notaires.fr)
Percentage of the property price: 7.28%
Reduced property owner’s tax (la taxe foncière)
Those who purchase new-build properties can be subject to exemptions to the French property owner’s tax (taxe foncière) for the first two following the completion of the property, or for the first five years if the property qualifies as an energy efficient one.
Income tax reductions via “la loi Pinel”.
The “loi Pinel” allows investors into new-build apartments to obtain income tax relief. Those who renovate existing apartments are sometimes eligible if the renovations amount to at least 25% of the property cost. Here is a lot of some of the other criteria:
- The property also needs to be located in an area designated to be a priority for new-build properties in France.
- The tenants need to not exceed certain income limits
- The property must be let out on an unfurnished basis and as a primary residence (no AirBnB properties!)
- The property must be rented within the first 12 months of the property completion
- The owner needs to sign at least a six-year rental contract with the tenant
- The rent charges must not exceed certain limits
The tax deductible investment amounts are limited to the following:
- The value of the eligible investment is limited to €300,000 per year per tax payer
- €5,500 per square meter of habitable surface
- You must not exceed the total limit for tax reliefs.
The tax reliefs in 2024 are calculated as follows:
- 9% for six year rental agreements
- 12% for nine year rental agreements
- 14% for 12 year rental agreements
For the tax relief known as Pinel +, the tax reliefs are the following:
- 12% for six year rental agreements
- 18% for nine year rental agreements
- 21% for 12 year rental agreements
Pinel + (or Pinel plus) has recently been introduced and applies essentially to properties with high energy efficiency performance ratings.
Important note: These Pinel tax reliefs are due to be abolished for property purchases after 2024. However, they may be replaced by other tax incentives to encourage investments into energy efficient properties.
How can Aisa International help you?
We are experts in French property transactions and investments. We can guide you through the process and may be able to introduce you to lenders in order to finance your French property. Feel free to visit our French mortgages FAQ and our blog for other property and investment related articles.
The views expressed in this article are not to be construed as personal advice. Therefore, you should contact a qualified, and ideally, regulated adviser in order to obtain up-to-date personal advice with regard to your own personal circumstances. Consequently, if you do not, then you are acting under your own authority and deemed “execution only”. Additionally, the author does not accept any liability for people acting without personalised advice, who base a decision on views expressed in this generic article. Importantly, this article is dated and is based on legislation as of the date. It should be noted that legislation changes, but articles are rarely updated. Sometimes a new article is written; so, please check for later articles. Additionally, check for changes in legislation on official government websites. Finally, this article should not be relied on in isolation.
