The Unexpected Effect of Inflation on French Property Taxes

Real property taxes in France are calculated based on the cadastral rental value of real estate. This is akin to a fee simple valuation in the U.S. where market rents are used as the basis of setting the assessment.

The cadastral value is reduced by a 50% allowance, which means that only 50% of the assessed value is taxable. Until 2018, rental values were revalued each year according to a coefficient set freely “by the finance law, taking into account variations in rents.” Since 2018, the revaluation coefficient for year N has been set according to the shift annual harmonized consumer price index for the month of November of the year N-1.

Obviously, the rapid increase in inflation is having a dramatic impact on assessed values. The increase in inflation is derived from the year-over-year change in the core consumer price index (CPI).

For instance, the CPI increased by 3.4% between November 2020 and November 2021, leading to an equivalent increase in rental values on January 1, 2022. The increase will continue and even accelerate sharply for the year 2023. Inflation was 7% between November 2021 and November 2022. Accordingly, this rate will be used in accordance with the current law. In comparison, the total five-year change in CPI rates between 2016 and 2021 was only 5.3%.

Accordingly, commercial property owners are sure to see significant increases in their real property taxes starting in 2023 based upon these inflationary pressures. In addition, local municipalities are likely to add further local rate increases to cover their budget shortfalls. For example, the mayor of Paris, Anne Hidalgo, has planned a 52% increase in the tax rate for the French capital. The real property tax rate will, therefore, increase from 13.5% to 20.5% in 2023.

These significant tax increases are driven in part because local government is having to spend more on energy and other operating costs. Property tax is the only place where the local government jurisdictions can turn to get some relief from their increased operating costs.

The following table summarizes those property taxes that can be appealed and when they must be filed timely.

To help you better control your real property taxes, Ryan’s Paris office has local experts in the administration, management, and appeals of property real taxes in France. If you would like to know more about how Ryan can help with the management and mitigation of your French and other European property taxes, please contact the Ryan experts.