Holiday Properties - Taxes & Inheritance

From dream to real estate: Holiday properties have always been attractive, especially during times when holidays are becoming increasingly popular away from conventional hotel stays. However, it is important to keep an eye on costs despite all the enthusiasm. This begins with the incidental costs of the actual acquisition and can extend up to inheritance tax in case of inheritance.

In the following, we examine the costs that need to be taken into account for France, which may arise in case of acquisition of a property, on-going operations, for a sale, in case of a gift or in the event of inheritance.

Content overview

What costs do you incur when purchasing a holiday property?

In addition to the purchase price, fees and taxes are due for the acquisition of real estate in France.

First of all, the notary fees must be mentioned. There are fee tables for the amount that the notary receives as remuneration for his services. The fees amount to approximately 1% of the purchase price. If the notary provides additional services in addition to the certification, he can demand additional fees.

In addition, there is the land acquisition and cadastral tax. The purchase of the property is taxed with the land transfer tax ("droit de mutation"), and the costs of the land register entry are covered with the cadastral tax ("taxe de publicité foncière"). The total amount of taxes and fees is currently approx. 7 to 8% for used properties, and approx. 2 to 3% of the purchase price for new properties. In principle, they must be borne by the buyer.

Finally, it must be pointed out that when purchasing new real estate, value added tax ("taxe sur la valeur ajoutée") in the amount of 20% is due. However, this is often already included in the purchase price.

What operating costs need to be paid by the owner of a holiday property?

If you live in the property you have purchased yourself, the following fees and taxes will be charged:

The property tax ("taxe foncière sur les propriété bâties") must be paid annually by the person who is the owner, leaseholder or usufructuary on 1 January of the respective year. If the property is sold after 1 January, the property tax for this year has already been paid. However, it can be agreed in the preliminary contract that the buyer must bear part of what is common practice.

Since 2023, housing tax ("taxe d’habitation") has been abolished.

In addition, there are other on-going costs associated with real estate ownership.

What costs are incurred when selling a holiday property?

In the event of the sale of a property that is not the seller's main residence, a value increase tax (so-called "plus-value immobilière") is generally incurred in France. What is decisive here is the profit that has arisen since the acquisition of the property. This profit tax is due upon notarisation of the sale and is to be borne by the seller. Special features apply to commercial real estate traders or companies subject to corporate tax, which are not discussed below.

The tax essentially consists of three components:

  • Income tax share ("impôt sur le revenu") in the amount of 19%;
  • Social security contributions ("prélèvement sociaux") in the amount of 17.2% and 7.5% respectively for persons who are subject to social security obligations in an EU country or Switzerland (so-called ‘Solidarity Discount’, "prélèvement de solidarité");
  • If necessary, additional levy ("taxe additionnelle") of 2 to 6% with an increase in value of more than EUR 50,000.

The legal regulatory environment for calculating the tax is complex and individual. In principle, the taxable increase in value (using discounts in relation to the holding period) must first be determined in advance, taking into account any tax exemptions. For example, for the income tax portion, there are discounts from the sixth year of the holding period of the property (6% for a holding period between 6 and 21 years and 4% in the 22nd holding year); with a holding period of more than 22 years, the income tax portion is omitted. Social security contributions are not applicable for a holding period of 30 years or more.

In addition, there are special exemption circumstances, for example:

  • If a seller has initially been resident and subject to unlimited taxation in France before moving his main residence to Germany and selling his French residential property within the year in which he abandoned his French residence;
  • the application of an exempt amount of EUR 150,000 if the seller had in the past lived in France for at least two years and sold his France property within 10 years after relinquishment of his French residence.

In the case of the aforementioned alternatives, it is important that the seller has neither leased their property temporarily nor otherwise transferred it to third parties for use.

In practice, the notary acts as an extended arm of the tax office and must ensure on a fiduciary basis that the tax is paid to the French tax authorities after receipt of the purchase price in his notary escrow account.

What costs apply when making a lifetime gift?

After the double taxation agreement applicable between France and Germany, which is applicable to all cases of inheritance and donations from 3 April 2009, a property located in France is (also) always taxable there (so-called principle of occupancy). The tax rate is designed in such a way that the global assets (including such goods outside France) must be taken into account for its determination; this increases the tax rate. In France, however, only the value item that – like the French property – may be taxed based on the DTA in France.

Otherwise, the scope of the taxation depends on the place of residence of the testator and the heir. For example, if one of the heirs is resident in France, the heir must also tax his inheritance share in France, taking into account any tax paid in Germany.

If the inheritance case occurred outside France, the French inheritance tax return plus inheritance tax payment must be submitted within 12 months or the tax must be paid; the tax office in Noisy Le Grand ("Recette des non-résidents", 10 rue du Centre, 93465 Noisy Le Grand Cedex ) is centrally responsible for foreign inheritance cases. If the testator died in France, the deadline is even as short as only six months. It should be noted that in the event of an inactive exceedance of the aforementioned deadlines, interest on arrears and penalties are threatened. Due to the numerous case combinations and the deadlines to be observed, it is strongly recommended to seek legal advice in a cross-border context.

What costs are incurred in the event of inheritance?

See above.

Autor: Maurice Hartmann