The Taxe d’Habitation is a key component of the French tax system, impacting both homeowners and expats living in France. This local tax is levied on individuals who occupy a residence on January 1st of each year, whether they are owners, tenants or occupants free of charge. Understanding the intricacies of the taxe d’habitation is essential for anyone living in France.
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Overview of the Taxe d'Habitation
The taxe d’habitation is a significant component of the French tax system, affecting both homeowners and expats living in France. This local residential tax is levied on all habitable properties and is crucial for funding essential local services. Understanding its scope and impact is vital for anyone living in France.
Purpose of the taxe d'habitation
The primary purpose of this tax is to generate revenue for local authorities. These funds are allocated to various local services that directly benefit the residents. Key areas funded by this tax include waste collection, public transportation, maintenance of public spaces, and other community facilities. As such, the taxe d’habitation plays a pivotal role in ensuring the smooth functioning and quality of life within local communities.
Who pays the tax?
The responsibility for paying the tax falls on different parties depending on the occupancy status of the property:
- Owners: Homeowners who occupy their property are liable for the taxe d’habitation. This includes both primary and secondary residences, although different rates and exemption may apply.
- Tenants: Renters are responsible for paying the taxe d’habitation for the property they occupy. The tax is based on the rental value of the property and is assessed on the tenant as of January 1st each year.
- Free occupants: Individuals living in a property without paying rent, such as family members or friends of the owner, are also subject to the taxe d’habitation. The tax is calculated similarly, based on the property’s rental value and the occupant’s situation.
> You might be interested in this article: Typical French taxes charged to homeowners in France
Calculation of the Taxe d'habitation
Property valuation
The calculation of this tax is based on the valeur locative cadastrale, or the notional rental value of the property. This value is determined by the local tax authorities and reflects the potential rental income the property could generate.
Local tax rates
Each local authority sets its own tax rates, which can vary significantly. The rates are applied to the notional rental value to determine the total tax owed. Consequently, properties in more desirable areas or with higher amenities may incur higher taxe d’habitation charges.
Occupant's income and family situation
Reductions and exemptions may apply based on the occupant’s income, family situation, and other specific circumstances. Low-income households, large families and senior citizens may be eligible for partial or full exemptions.
> You might be interested in this article: What is the Taxe Foncière in France?
Taxe d'habitation for secondary residences
Gradual phase-out for primary residence
The French government has initiated a gradual phase-out of the taxe d’habitation for primary residences, significantly altering the landscape for homeowners in France. This reform aims to alleviate the financial burden on residents, with the majority of households expected to be exempt from this tax by 2023. The phase-out began in 2018, with incremental reductions each year, culminating in a complete exemption for most primary residences.
Ongoing tax for secondary residences
Despite the phase-out for primary residences, the taxe d’habitation remains applicable to secondary residences and high-value properties. The property tax on secondary residences is based on your situation as of January 1st of the tax year.
You are required to pay it if you are the owner or usefructuary (a person who has the right to use and earn income from a property without owning it, such as selling it) of a secondary residence (or another furnished property not used as the primary residence), meaning a furnished home that is not your main home.
If you are renting your secondary residence on an annual basis, you must pay the property tax for the residence (you will receive a property tax notice).
> You might be interested in this article: What taxes do expats pay in France?
Final notes
The taxe d’habitation is a significant aspect of the French tax system that affects homeowners and expats living in France. Understanding its calculation, implications, and recent changes is crucial for effective financial planning and compliance. While the tax contributes to essential local services, recent reforms aim to reduce its impact on primary residences, providing relief to many residents. Whether you are a homeowner or an expat, staying informed about the taxe d’habitation will help you navigate your financial responsibilities while living in France. More about the taxe d’habitation on the French government website here.
