Zero Income Tax France

Pay Zero Tax on French Buy To Let Property

France is often considered a high tax environment and is almost invariably portrayed that way in the press and for most assets and income streams this is true however if you know where to look you will see that there are some incredible tax advantages for certain assets. The one I will highlight in this article is “French holiday rental property with hotel services” which under certain conditions attracts zero tax on rental income and very little or no tax on capital gains tax.

French holiday rental property when on a managed residence with facilities and hotel services provided when a rental management agreement is signed with the management company is able to offset 90% of it’s value over a 30 year period (3% per year) against income derived from the property. This is because they accept amortization of the property as they consider it a commercial asset when used for this activity. Unlike the UK you are also able to offset ALL of your mortgage interest against income and like the UK all associated costs like accountancy fees & repairs etc. The result is that the income tax applied on these types of properties ends up being zero or close to zero. In addition you are able in this instance to receive back the VAT (20%) which is included in all new property sales in France.

This does not mean you will not be able to use it yourself either. On the contrary. So long as you are earning a “reasonable” rental income from the property which can be earned from as little as 4 to 6 weeks of rental income per year then it qualifies and you can use it yourself (for up to six months per year). You may also sign a commercial lease on some residences and receive a fixed rental income rather than a variable one but you are not obligated to do this to qualify.

The result is none or very little tax to pay overall and in our article we show tables comparing UK Buy to Let property with this specific type of French holiday rental property.

In the workings below we can show how you would pay just £12,000 in tax in France compared to £261,000 in tax in the UK (over 20 times more) over a 15 year period. Below are two worked examples based on a 40% tax payer in the UK (earning more than £43,000 per year) earning a rental income of £27,000 per year from a £400,000 property from the year 2020:

UK:

Annual rental income £27,000
Mortgage interest payable £15,000
Total rental income on which tax is payable £27,000
Tax at 40% £10,800
Tax relief at basic rate- 20% of mortgage interest £3,000
Total Tax payable £7,800

 

France:

Annual rental income £27,000
Mortgage interest payable £15,000
Amortisation (3% of £400,000) £12,000
Total rental income on which tax is payable £0
Tax payable £0

 

*With both examples you are able to also offset maintenance fees & agency fees.

So we can clearly see here that in the UK the income tax you would pay on your rental income per year is £7,800 while in France it would be nothing.

When we add in the other taxes and assume it sold for twice its original value at £800,000 after 15 years making a profit before tax of £400,000 we can show the following:

 

UK France
Income tax paid 15*£7,800 = £117,000 £0
Capital gains tax 28%*£400,000 = £112,000 20.5%*£400,000= £82,000
VAT rebate when purchased £0 £80,000
Stamp duty paid 8%*£400,000 = £32,000 2.5%*£400,000 = £10,000
Total tax paid £261,000 £12,000

 

So as we can see the total tax paid on the UK BTL property in this example over a 15 year period with the same rental income is £261,000 compared to £12,000 paid on a French furnished holiday let with onsite hotel services**. If we extended it to just a couple more years of ownership to 17 years the capital gains tax due reduces even further in France such that the net tax due is ZERO.

**A furnished holiday let could be anything from a studio apartment to a large detached villa with a pool.