Benefits of a French Mortgage for Tax Purposes
Originally posted on & updated on 11th November, 2023
Our French tax and legal partner François at RWK Goodman has prepared this short article to explain the benefits of having a mortgage or liability against your French property with the aim to be more tax efficient.There are several reasons to acquire a French property with a mortgage and the main benefits are summarised below.
Income taxTo calculate your taxable rental income, you generally deduct your rental business regular expenditure from the total income.
In France, regular expenditure includes loan interest and if you rent out your French property then you are able to charge mortgage interest costs against rental income.
If you are UK tax resident and rent out your French property, your French rental income will be taxable in France and in the UK. To avoid double taxation, the French income tax will be offset against the UK tax due on French your rental income.
In the UK, interest in respect of a residential property is not generally deductible against taxable income. Instead, a tax credit equal to 20% of your annual loan interest can be deducted against your UK tax liability.
Wealth TaxThe French wealth tax was replaced in 2018 by the annual real estate wealth tax, known as Impôt sur la Fortune Immobilière ('IFI'), which is a tax on immovable property and real estate rights.
You will be liable to pay IFI if the net market value of your household’s taxable real estate assets exceeds €1.3M as of 1 January.
In determining the taxable value of your real estate for IFI purposes, debts (whether secured by mortgage or not) existing at 1 January of the relevant tax year are deductible provided they relate to the purchasing, repairing, improvement, construction or extending of a real estate asset.
So, if you buy a French property and finance the purchase with a mortgage, the outstanding debt can be deducted from the value of your French property when calculating your wealth tax liability.
Succession TaxWhether you are French resident or not, a mortgage could be used to reduce your French succession tax exposure. This is because debts are deductible from the value of assets for French succession tax purposes. However, if you are non-French domiciled, then only debts secured against your French property will be allowable. In the case of an UK domiciled individual, a mortgage secured against a French property would be allowable.
Please note this article is for general information. You should not rely on it without advice on the specific facts of your case.
Our French tax experts specialise in these legal issues; including taxation, wealth tax, succession, etc. They have extensive knowledge of French tax and the system there, contact us for more details. We can also assist with loan insurance, your French insurance needs and competitive euro rates.