French Property: Owner’s declaration obligations
The French government recently announced that it was suppressing one of the local taxes applicable to residential property, the taxe d’habitation, although only for ones principal residence.
It follows from this that there is now a need to establish a record of which properties come into the definition of principal residence and which are holiday homes, investment properties or just vacant.
Property owners in France will be aware that the taxe foncière and taxe d’habitation local tax bills for each property are generally issued in the autumn of each year. The government has therefore given itself the rather daunting task of establishing a database of the status of all residential property before those bills are issued.
To deal with this, all owners in France are required to submit a declaration online by 30 June 2023. This declaration is made online via the French government’s tax portal. There is, it would appear, no paper option available, although given the time constraints, that is hardly surprising. The declaration will confirm whether the property is ones main residence or not.
The declaration needs to be made by the owner of the property on 1 January 2023. This is still the case if the owner comes to sell the property before the deadline, or where the property was registered in the name of a deceased person on 1 January, while a notaire is yet to finalise the succession.
Failure to submit the declaration will result in a penalty of 150€.
Presuming the system works correctly, then only second homes will be subject to the tax. It is of course in the interest of French residents to ensure that they complete the declaration in good time. They will qualify for an exemption to the tax.
As to whether the French tax office will look to cross-reference the declarations with income tax records remains to be seen. An erroneous declaration that a house is in fact ones main residence, resulting in an exemption to the taxe d’habitation may nevertheless lead to an invitation to file an income tax return based at the same property, if not other penalties as well.
Many of our clients look to purchase a property in France initially as a holiday home, although with a view to this eventually becoming their main residence – perhaps when they are finally able to retire. Just as any change of status from holiday home to permanent residence will oblige those clients to change the way they declare their income tax (they will have to declare in France from that point onwards), they will also have to contact the local tax office to ensure the status relating to taxe d’habitation is updated correctly.
And going forwards, it would appear likely that every sale and purchase, every transfer on death, and every property gift will generate a need to check if the status of the house is to be amended.
Part of the notaire’s role in completing any property transfer is to ensure that the new owner’s details are registered with the local tax office. Those new owners may well not have bothered to contact the local tax office before now, preferring simply to wait for their local tax bills to be issued in their name, with a tax identification number issued to them. Now, however, if they want to ensure their details are correctly recorded – with or without the exemption to taxe d’habitation – it seems that they will need to be a little more proactive by requesting a tax number and checking their details before the annual invoices arrive.
This may all appear somewhat burdensome, although that should hopefully not, in fact, prove to be the case. Once a person has their tax identification number they should be able to update details online via the French government tax website.
It does, though, remind us of a number of other occasional declarations that may apply in relation to ownership of French property. As an aside from the detail above, it might be worth highlighting a few of these.
First, many owners in France are not aware of the impact of French wealth tax. There is no real equivalent of this tax in the UK. It applies where a person (or married couple/civil partners) own real property (or holds shares in real property companies) worth more than 1.3 million euros.
There are a number of exemptions, for example, in relation to certain commercial, professional or agricultural buildings and land. In addition, the value of any mortgage is discounted, and there is a 30% reduction in the value of the main residential dwelling.
If, after all exemptions and allowances are taken into account, the French property is worth more than 1,300,000 euros, then an annual declaration is required. Just as for the new declaration for taxe d’habitation, the declaration is to be filed by the end of June each year. It relates to the value of the owner’s estate as of 1 January of that year.
Another potential declaration requirement arises in the perhaps rare instance that a French property may be owned through a non-French company. As a firm, we tend to advise against such ownership structuring, certainly in the absence of detailed accountancy advice from both UK and French accountants. One of the reasons for this is that there is a potential exposure to an obligation to pay a tax each year set at 3% of the value of the real estate.
There is an exemption to this tax provided that the company makes a full declaration annually of the property owned and the status of the company, undertakes to respond to any requests for information as to the status of the company from the French authorities, and undertakes to update any declaration where there is any change. The information required includes the value of the property, full identity and address details of all shareholders.
Clearly, the intention of this onerous obligation is to be able to identify correctly the real owner of a property in France, in an effort to avoid complex ownership structures that can be used to shield that eventual owner’s identity.
In a similar manner, there are requirements for declarations where property is held in trust. While trusts may be quite popular for UK estate planning and property ownership purposes, they are considered somewhat sceptically in France. That scepticism may be understandable, as it can often be used to shield the identity of a beneficial owner.
In an effort to combat this ownership shielding, France has imposed strict annual declaration requirements in relation to trust ownership. It is now the case that where there is any link between a trust and France, then a declaration must be filed. Relevant links between France and a trust may include the existence of a French property within a trust, or the residence in France of the settlor (the person setting up the trust), a trustee, or even a beneficiary.
Links between France and a trust can give rise to tax consequences in France, particularly on the death of a party. Those tax consequences can be quite heavy. Just as we usually advise buyers against holding a French property in an English company, we also tend to advise against ownership through a trust.
We are, however, often called upon to assist with the relevant annual declarations.
The declarations themselves may not be that complex to complete and file. However, knowing what needs to be declared is perhaps a little more challenging, especially where penalties can be imposed for failure to file. As ever, expert advice on your French property requirements should always be sought.
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