Understanding French Real Estate Taxation and Other Key Constraints

France is one of the most attractive real estate markets in Europe: strong demand in major cities, a globally renowned lifestyle, and a legal framework that strongly protects property rights. To turn these advantages into concrete results, however, you need to master one crucial aspect: how French real estate is taxed and what other constraints apply.

Once you understand the rules, French real estate taxation becomes a powerful optimisation tool rather than a source of anxiety. You can choose the right investment strategy, anticipate cash flow, and legally reduce your tax bill over time.

Why mastering French property taxation is a powerful advantage

Real estate taxation in France can look complex at first glance: multiple taxes coexist, and different regimes apply depending on whether the property is a main home, a secondary residence, or a rental investment. Yet this apparent complexity hides several strong advantages:

• Predictable ruleswith clear formulas for most taxes.
• Generous allowances and deductionsfor rental investors who plan well.
• Long-term incentivesthat reward holding property for many years.
• Specific regimes for furnished rentalsthat can significantly reduce taxable income.

The key is to understand which taxes apply at each stage of your project: when you buy, while you own, when you rent out, and when you sell or transfer the property.

The main taxes when you buy property in France

When you acquire a property, you will mainly encounter transaction costs commonly grouped under the label notary fees. In reality, most of these costs are taxes or registration duties collected by the notary on behalf of the State and local authorities.

Notary fees and registration duties

For an existing, previously owned property (often called an old property in France), total buyer costs typically range around 7 to 8 percent of the purchase price. These costs include:

• Registration duties and taxespaid to the State and local authorities. This is the biggest component.
• Notary remuneration, which is strictly regulated and represents only a fraction of what you pay.
• Disbursements(administrative costs, land registry checks, documents, etc.).

For a new property (sold within a few years of completion and under certain conditions), buyer costs are usually lower, often around 2 to 3 percent, but value added tax may apply to the purchase price itself. This is discussed in the next section.

VAT on new-builds and off-plan purchases

In France, the sale of a new property is often subject to value added tax. The main cases are:

• Purchase of anewly built propertysold by a developer.
• Off-plan purchaseswhere you buy the property before it is completed.

In these situations, the sale price usually includes VAT. In exchange, registration duties are reduced compared to an old property, which explains why the total purchase costs are often lower in percentage terms for new real estate.

From an investor’s perspective, this can significantly improve your entry cost structure and make new-build projects particularly attractive in high-demand areas.

Taxes while you own the property

Once you own the property, several recurring taxes may apply. Understanding them allows you to anticipate cash flow and build them into your profitability calculations.

Property tax (taxe foncière)

The property tax is a local tax paid each year by the owner of built or unbuilt property. It is calculated from a notional rental value defined by the tax administration and from rates voted by local authorities.

Key points to keep in mind:

• The owner paysthe property tax, even if the property is rented out.
• The amount can vary significantly from one municipality to another.
• For rental properties, the property tax is generallydeductible from your taxable rental incomeunder the real regime.

Including the exact amount of property tax in your cash flow projections is essential for assessing the real net return of a property, especially outside major cities where rates can be higher.

Residence tax (taxe d habitation) and its evolution

The residence tax historically applied to people who occupied a dwelling, whether owners or tenants. Recent reforms have deeply reshaped this tax:

• Formain residences, the residence tax has been gradually removed for most households.
• Forsecondary residences and some vacant dwellings, a form of residence tax can still apply, sometimes with surcharges in high-tension housing areas.

For investors, this evolution is rather favourable: tenants of main residences are less exposed to this tax, which can indirectly support rental demand and solvency. However, owners of secondary residences must factor in any remaining residence tax in the total cost of ownership.

Wealth tax on real estate (IFI)

France applies a specific tax on large real estate holdings called IFI, the real estate wealth tax. It replaces the former general wealth tax and focuses solely on real estate assets above a certain net threshold.

Key principles as of 2024:

• IFI applies if yournet real estate assetsexceed a legally defined threshold (including properties and certain real estate rights).
• Debts related to real estate (for example, outstanding mortgages) are generallydeductibleunder specific conditions.
• Progressive tax bands apply once you exceed the entry threshold.

For most typical investors, IFI will not apply. But for substantial portfolios, strategic choices about financing, holding structure, and asset allocation can significantly reduce or even neutralise this tax.

Taxation of rental income: unfurnished vs furnished

The way your rental income is taxed in France depends on two main factors:

• Whether the property isunfurnished(classic long-term rental).
• Orfurnished(with sufficient furniture to live there normally).

Each option has its own tax regime and optimisation opportunities.

Unfurnished rentals and the land income regimes

Income from unfurnished rentals is called land income. There are two main tax regimes, chosen depending on your level of receipts and your strategy.

Micro-foncier regime

The micro-foncier regime is designed for landlords with relatively modest rental income and simple situations.

• It applies up to a certain annual threshold of gross rent, excluding charges.
• You benefit from astandard allowanceon your rental income. This allowance is intended to cover expenses; you do not deduct actual costs.
• The regime issimple to managebecause you simply declare the total rents and the allowance is applied automatically.

This regime is attractive if your real expenses are low. However, if you carry out substantial works or have significant interest and charges, the real regime is often more beneficial.

Real regime for land income

The real regime allows you to deduct your actual expenses from your rental income. It is particularly suitable for investors who actively manage and improve their properties.

Under this regime, you can usually deduct for each property:

• Loan interestand certain financing costs.
• Property taxand some local taxes.
• Insurance premiums.
• Maintenance and repair workswhich do not significantly modify the structure of the property.
• Management and agency fees.
• Someco-ownership chargesrelating to the rental.

If your deductible expenses are high, your taxable base may be significantly reduced, and in some cases you can generate a land deficit which, under legal conditions, may be offset partly against your other income. This can dramatically improve the after-tax yield of a heavily financed or renovated property.

Furnished rentals and the BIC regimes

Income from furnished rentals is taxed in a different category, known as industrial and commercial profits. Here again, two main regimes exist: a simplified regime with a standard allowance and a real regime that allows you to deduct actual costs and depreciation.

Micro-BIC regime for furnished rentals

The micro-BIC regime is available up to a certain level of annual gross rental income, with specific thresholds for standard furnished lets and for classified tourist accommodation or bed and breakfast activities.

• You benefit from alarge lump-sum allowanceon rents, higher than in the micro-foncier regime.
• You do not deduct actual expenses individually.
• The regime isextremely simpleto manage administratively.

Because the allowance is generous, micro-BIC can be very efficient for small furnished portfolios with limited expenses.

Real BIC regime and depreciation for furnished rentals

The real BIC regime is one of the most powerful tools in French real estate taxation. In addition to deducting your actual expenses (loan interest, works, charges, etc.), you can generally deduct:

• Depreciation of the buildingover a long period.
• Depreciation of furniture and equipmentover shorter periods.

This depreciation is anon-cash charge: it reduces your taxable profit without reducing your actual cash flow. In practice, many furnished rental investors manage to bring their taxable result close to zero for several years, even while generating positive cash flow.

Two important statuses are often distinguished:

• Non-professional furnished landlord: the most common case, with specific rules on how you can offset any deficits.
• Professional furnished landlord: under conditions of income levels and registration, with different social and tax treatment.

Choosing between these statuses and between micro-BIC and real BIC should be done carefully, ideally with the support of a tax adviser or accountant, as the impact on net after-tax yield can be major.

Summary: main rental tax regimes in France

Capital gains tax when you sell

When you sell French property at a profit, a specific capital gains regime applies. The rules are particularly favourable for main residences and for long holding periods.

Complete exemption for main residence

If the property is your main residence when you sell it, the capital gain is generallyfully exemptfrom French income tax and social contributions, subject to compliance with legal conditions. This makes home ownership particularly attractive in the long term.

Capital gains on secondary residences and rental properties

For properties that are not your main residence, the capital gain is usually taxed in two parts as of 2024:

• Income taxat a flat rate on the net gain.
• Social contributionsat a separate rate on the same gain.

However, France offers a progressive relief that rewards long-term holding. After a certain number of years of ownership, an allowance applies to the capital gain for income tax, and another for social contributions, until:

• Full exemption from income taxafter a defined period of ownership.
• Full exemption from social contributionsafter a slightly longer period.

In practice, this means that patient investors who hold property for the long term can sell under very favourable conditions, especially in markets where capital appreciation is strong.

Optimising capital gains tax

Several levers can help you manage capital gains tax more effectively:

• Choosinghow to financeand structure the purchase (for example, personally or via a company) to adapt the regime to your goals.
• Scheduling the sale to take advantage ofholding period allowancesonce the most advantageous thresholds are reached.
• Planningmajor renovation or restructuring projectsso that they can be added, under conditions, to the acquisition cost over time.

Because each situation is unique, a personalised simulation before selling can reveal substantial savings and help you decide whether to sell, keep, or reinvest.

Other often overlooked costs and taxes

Beyond the main taxes already mentioned, other costs influence the real profitability of a French real estate investment.

• Agency feeson purchase or rental, which can be paid by the buyer, the seller, or shared, depending on the deal.
• Co-ownership chargesfor buildings under joint ownership, especially if the property has lifts, caretakers, or common facilities.
• Insurancespecific to landlords, including rent guarantee or vacancy cover if you choose them.
• Management costsif a professional agent handles rentals and day-to-day follow-up.

While these are not all strictly taxes, a smart investor looks at them with the same attention, because they are part of the long-term financial equation.

Beyond tax: legal and regulatory constraints to know

Real estate investment in France also involves legal and regulatory constraints. Properly managed, they protect you and your tenants while preserving the long-term value of your property.

Urban planning and zoning rules

Each municipality in France has planning documents that define what can be built, renovated, or extended. These rules impact:

• Thetype of projectsyou can carry out (extensions, changes of use, subdivision of flats, etc.).
• Possibledensities and heightson a plot of land.
• Protection zonesaround historical sites or natural areas.

By checking planning rules early, you can identify properties with hidden potential, such as a building that can be extended, a roof space that can be converted, or premises that can legally change use, thereby increasing value and rental income.

Co-ownership rules and internal regulations

If you buy a flat in a building under co-ownership, you must respect the co-ownership regulations and decisions of the co-owners’ meetings. These rules can affect:

• Whether you canuse the property as a short-term rental.
• Possiblelayout changes(opening structural walls, merging or splitting lots, etc.).
• Installation ofequipmentsuch as air conditioning units, shutters, or satellite dishes.

Far from being a hurdle, a well-managed co-ownership can be a strong asset: good maintenance and regular works votes help preserve or enhance the building’s value over time.

Energy performance obligations and rental bans

France has strengthened its rules on the energy performance of dwellings, with direct consequences for rental investors. A property is classified on an energy performance scale from A (very efficient) to G (very energy intensive).

Key ideas to keep in mind as of 2024:

• Certain very poorly rated properties are gradually considered as not meeting decency standards andcannot be rented outunless renovation work is done.
• Deadlines have been scheduled so that properties with the worst ratings must be improved before new leases can be signed.
• Energy renovation works canincrease the property’s value, improve tenant comfort, and sometimes make you eligible for specific subsidies or support schemes.

For investors, this regulatory framework is both a constraint and an opportunity: acquiring a poorly rated property at a discount and renovating it efficiently can generate a significant capital gain while securing the property’s ability to generate income in the long term.

Short-term rentals and local rules

In cities that attract tourists or business travellers, short-term rentals can deliver high yields. However, large municipalities and tense areas often have specific rules for this type of rental, which may include:

• Registration obligations with the city for short-term lets.
• Limits on the number of nights per year for main residences.
• Change-of-use authorisations and possible compensation mechanisms for secondary homes used as short-term rentals.

By understanding these local rules and choosing the right area and configuration, you can take advantage of short-term rental demand without legal or tax unpleasant surprises.

Strategic levers to optimise French real estate taxation

Once you have a clear picture of the main taxes and constraints, you can build a genuine optimisation strategy. Here are some of the most effective levers.

Choosing the right rental strategy from the outset

Your first strategic choice is between unfurnished and furnished rental, and between the different tax regimes available. Each combination has pros and cons in terms of:

• Net yield after tax.
• Administrative complexity.
• Type of tenantsand length of leases.

For example, a furnished rental under the real BIC regime is often more efficient in terms of taxation for investors ready to manage a more active rental model and to keep accounts. Conversely, an unfurnished rental under the real regime will suit those seeking long-term stability with simpler leases.

Taking advantage of works, charges, and depreciation

Works and charges are not just costs: properly structured, they become powerful tax optimisation tools.

• In thereal land income regime, maintenance and repair works, property tax, management fees, and loan interest can significantly reduce taxable income.
• In thereal BIC regime, depreciation of the property and furniture can offset rental profits over many years.
• Energy renovation works can simultaneouslyimprove rating, reduce vacancy, and increase market value.

By timing major works strategically and choosing the most suitable regime, you can transform necessary expenses into a real driver of tax efficiency.

Thinking long term about holding and selling

French rules strongly favour long-term holding, especially for capital gains taxation. A few long-term decisions can make a big difference:

• Aim forkey holding periodsthat maximise capital gains allowances.
• Balance your portfolio betweenhigh-cash-flow assetsand assets with strong appreciation potential.
• Planexit strategiesin advance: sale property by property, sale of an entire building, or transmission within the family.

Because tax treatment of capital gains and inheritance is specific, a long-term vision helps you avoid rushed decisions and capture more of the value you have built.

Using appropriate legal structures

In some situations, it may be advantageous to hold property via a specific legal structure rather than directly. For example, certain forms of real estate company allow:

• Pooling investments between several partners.
• Organisingsuccession and transmissionmore flexibly.
• Choosing a particular tax regime, such as personal or corporate taxation, depending on objectives.

The relevance of such structures depends on the size of your portfolio, your family situation, and your goals. They are powerful optimisation tools when used thoughtfully and with expert guidance.

Practical roadmap: how to approach French real estate taxation with confidence

To turn all these rules into a concrete advantage, you can follow a simple, structured approach.

1. Define your objectives and time horizon

• Are you looking foradditional monthly income, long-term capital gains, or both
• Do you plan to keep the property forless than 10 years or more than 20 years
• Is the prioritypersonal use(main or secondary residence) or pure investment

Your answers will orient you towards unfurnished or furnished rental, towards a particular city or region, and towards either income-oriented or appreciation-oriented assets.

2. Map out the taxes applicable to your project

• At purchase: registration duties, notary fees, and any VAT.
• While owning: property tax, possible wealth tax on real estate, and co-ownership charges.
• On income: land income or BIC regimes, depending on rental type.
• On exit: capital gains regime and related holding period allowances.

This mapping turns a complex legal environment into a clear, predictable framework in which you can simulate different scenarios.

3. Run financial and tax simulations

With the help of an adviser or using detailed models, simulate several options:

• Unfurnished micro vs unfurnished real regime.
• Furnished micro-BIC vs furnished real BIC.
• Different financing levels and loan durations.
• Scenarios with and without renovation works.

By comparing these simulations, you will see how taxation can amplify or reduce your net return and which levers give you the best risk reward ratio.

4. Build a compliance and monitoring routine

Once the investment is launched, adopt a simple routine so that taxation and regulatory constraints remain under control:

• Keep allinvoices and supporting documentsfor works and charges.
• Update yourrental accountsat least once per quarter.
• Monitorregulatory developmentson energy performance, rental rules, and local planning.
• Schedule a yearly review with a professional if your situation is evolving quickly.

This discipline protects you in case of an audit and allows you to react quickly to any new opportunity, such as a change in regime or a new support scheme for renovation.

Conclusion: turning French real estate rules into your ally

French real estate taxation and regulations may seem complex, but they are also rich in opportunities for investors and owners who take the time to understand them. Between the different rental regimes, deductions, depreciation, and favourable treatment of main residences and long-term holdings, the framework is designed to reward well prepared, long-term strategies.

By mastering the main taxes, anticipating legal and energy constraints, and building a clear optimisation plan, you transform what could be a source of uncertainty into a genuine competitive advantage. In a market as solid and sought after as French real estate, this expertise can make the difference between a simple purchase and a highly successful long-term investment.