The highly anticipated finance bill for 2018 was adopted by the French Constitutional Council on December 28. We have gathered some of the most important measures for property owners below.
Housing tax exemption: The residence tax – taxe d’habitation – will be abolished for around 80% of households. The tax will be phased out over a period of three years – reduced by one third every year. The finance bill specifies income ceilings that should not be exceeded in order to benefit from the decrease. For example the threshold is set at € 27,000 of reference tax income for a single person, € 43,000 for a couple and € 49,000 for a couple with a child.
Increase in social contribution: The social charge CSG (contribution sociale généralisée), which is the largest of several social charge taxes increases by 1.7%. The CSG is levied on many kinds of income such as income from investments, rental income and capital gains. Investment income (including rental income) increases from 15.5% to 17.2%.
Wealth tax reform: The current wealth tax (ISF – Impôt de Solidarité sur la Fortune) is replaced by a tax applied only to real estate assets. The basis of this new tax is the total value of real estate assets held by the household, directly or indirectly, with the exception of property used for a professional activity. Life insurance contracts and other financial investments will therefore be excluded from the tax base. IFI (l’impôt sur la fortune immobilière) – as the new tax is called – has the same aspects of the current ISF, namely the same threshold of € 1.3 million.
Flat tax on investment income: Financial income is currently taxed at different rates, but from January 1st 2018 it is liable to one fixed rate of 30% – the so called PFU (Prélèvement Forfaitaire Unique). The objective of this “flat tax” will be to standardize the taxation of income from financial investments by replacing all the existing schemes with a tax at the single rate of 30%. This 30% rate includes both income tax (12.8%) and social charges (17.2%). The PFU will apply to interest, dividends and capital gains from the sale of shares. The new flat rate will apply to investments over €150.000 per person or €300.000 for a couple.
Maintaining Pinel and zero-interest loans: Financial support mechanisms for new real estate purchase are maintained for another four years in areas where the real estate market is the most tense, including on Côte d’Azur. The Pinel scheme dedicated to rental property investment will be extended until 2021. The Pinel scheme will therefore allow individuals wishing to invest in a new home to benefit from an income tax reduction of 12, 18 or 21 % of the purchase price of a new dwelling, depending on the rental period of 6, 9 or 12 years.
Likewise zero-interest loans (PTZ – Prêt à Taux Zero) will continue until December 31, 2021, allowing borrowers to finance up to 40% of a construction project without being charged interest. The PTZ only concerns borrowers wishing to finance their first principal home. To benefit from the PTZ, the amount of renovation work must be at least equal to 25% of the total cost of the project.
Prolongation of energy tax credit: The energy transition tax credit (CITE – Crédit d’impôt en faveur de la transition énergétique) – will be extended for one year until a more efficient alternative is put in place. CITE has been set up to encourage taxpayers to undertake energy renovation of housing. It is only available to those who own a property in France as their principal home.
You can read more about the finance bill here.