Home tax review: trials to begin

TRIALS into revising the theoretical rental values on which local property taxes in France are based are to go ahead from early next year.

An experiment will be done in five “representative” departments, which had yet to be nominated by the budget minister on going to press. However locations mentioned in discussions so far are Paris, Nord, Val-de-Marne, Pyrénées-Atlantiques and Lot.

This will be the start of a major shake-up of the local taxes – taxe d’habitation and taxe foncière – to come into force for tax bills in autumn 2018.

The go-ahead for the trials, which had originally been suggested from 2014, was given just before the New Year in the Loi des Finances Rectificative pour 2013. This states that a report will be made based on the trials at the latest by September 30, 2015.

It will look at the impact on the public and on local authorities, bearing in mind that the overall aim is for local councils’ income to stay the same, while making taxation fairer.

An overhaul of the Valeur locative cadastrale (VLCs) has been expected for some time, with some commentators raising alarm over a massive hike in taxes that would result. However government officials insist that this will not be the case.
Consultations between central and local government have been taking place since last autumn, leading towards the trials and what will be the first major overhaul of the VLCs since 1970.

What are VLCs?
VLCs are meant to represent the theoretical in come from a property if it was rented out but are in fact often around 30% or less than today’s real market value.

This is however compensated for, in terms of raising tax, by the fact that the VLC is merely used as a “base” on which communes, for taxe d’habitation, and communes and departments, for taxe foncière, apply substantial percentage rates voted (and often slightly raised or lowered) annually.

In a press statement, the ministries overseeing the proposals stated: “Over 40 years there have been profound changes which have had major consequences, in particular on the relative levels of rents that are charged.
By launching this consultation the government hopes to recreate justice in the local tax system....
The aim will be to make the basis of tax coincide with the realities of the market.”

An expert source in the Ministry for State Reform said they are aware that “if we just content ourselves with making the VLCs equivalent to the market values, we’ll have very, very steep tax rises, but that’s not the government’s aim.”

Instead calculations of today’s market values will then be used to readjust VLCs across France so they more accurately reflect the value of homes relative to each other, which he said is what is also being done at present for business premises, with application to business tax in 2015.

“The aim is to have a reform which retains the same tax income for councils – it should not go up overall,” he said.

Since 1970, some areas and buildings might have become more desirable and luxurious, while once-fashionable areas might have become rundown.

The changes – which will not apply until 2018 – may therefore mean moderate rises for some people and drops for others, he said. “At a later date it may be possible to use real market values while forcing local authorities to automatically lower their rates; but that’s not the priority.

So, we won’t have real market values but we will have rebalanced the pressures of tax on the taxpayers.”

How the VLC works now:
The VLCs were based on a host of factors including size and amenities.

They were also placed into one of eight categories from “extremely luxurious” to “mediocre” depending on factors like the district, whether the building has a lift and where in the building the property is located, how new or run-down it is, even whether it has a pleasant view or not and is calm or subject to irritating noise.
Since then VLCs have been increased annually, according to a percentage voted in each year’s budget (1.018% for 2013).

Other than that there are modifications to a home’s VLC if it is extended, a swimming pool is built etc.

However even then the “real” value of the new construction is not added, just a proportional amount, based on floor space or the value given to similar amenities at properties in the area. When a new home is built, it too is not allocated its actual rental value, but one based on the VLC of homes of similar size and comfort in the area.

A less common example of where the VLC may change is if the home or part of it has changed use, eg. from agricultural to accommodation, as values used for professional premises are worked out differently from ones for homes.

The ministry expert said: “Originally there were supposed to be revaluations every five years, but it was never done.
There was an attempt at the start of the 1990s, when we recalculated all the VLCs, but in view of the consequences it would have had on families’ taxes it was never applied even though parliament had voted for it.
So each year we just have the fixed-rate rise, which takes into account inflation, evolutions in contraction costs etc. but applies everywhere in France.”

What is expected to happen in the reform:
There will be trials in five departments in 2015 to see what would happen if the reform was put in place. The results will be examined and a study will be done by September 2015. The reform will be put in place in 2016 and 2017 for a first application to taxes in 2018.

In practice a sample of people who rent different kinds of homes in different areas will be asked to report on what actual rent they pay and an average per square metre will be worked out. Owneroccupiers will not be included.

After that each year a representative sample will be canvassed, so values can be adjusted again.
VLCs of individual homes will still take account of size and luxury etc, but the evaluation methods will be simpler and involve fewer factors.

How the VLC is used to calculate tax:
Taxe d’habitation: equal to the VLC minus possible reductions (if it is your main home) eg. for family responsibilities, modest income or disability, then multiplied by the rate agreed by local councils. For example, for a house with an annual VLC of €6,000, minus €1,800 of reductions: €4,200 x 41% = €1,722 tax.
Taxe foncière: the commune’s and department’s rates are applied to half of the VLC. Suppose the total combined rate is 36%. This gives €3,000 x 36% = €1,080 tax.

- Connexion publishes a helpguide to the local property taxes, which can be downloaded from our website www.connexionfrance.com for €7.50

- The tax office’s new Patrim service is up and running, enabling you to estimate the value of your home using tax office data on recent valuations of other similar homes in your area.
To use it you need to access your personal space on the site www.impots.gouv.fr using the same procedures as if making an online tax declaration (this requires information you can find on your last avis d’imposition, such as your numéro fiscal and revenu fiscal de référence).
You need to agree to conditions of use and to your searches being recorded and give the reason for your search (such as potentially needing to make a wealth tax declaration).