Property tax 2024: INSEE unveils the first piece of a clever tax puzzle

Scrutinized for months for their impact on purchasing power, the monthly inflation figures that INSEE unveiled on Friday December 15 have an additional challenge for owners, now fixed on a key variable to calculate their property tax in 2024.

Calculation formula, expected development, impact of inflation: an update on what we already know about the 2024 property tax, which should not increase faster than inflation for the majority of French people.

Rental value

The calculation of the property tax is done in three stages.

First step: determine the “cadastral rental value” (the tax base) of the property which will be taxed.

According to the tax authorities' definition, the rental value "corresponds to the theoretical annual rent that an owner's apartment or house could produce" if it were rented under normal conditions.

Currently, this tax base is "calculated based on rental market conditions in 1970", recalls the General Directorate of Public Finances (DGFiP).

A particularly old reference which penalizes certain owners and benefits others.

In a 2019 study, La Banque Postale estimated that the rental values of 58 French departments (Oise, Cher, Saône-et-Loire, etc.) were overvalued compared to the reality of the real estate market, and that they were at the opposite undervalued in 39 departments (Aveyron, Gironde, Manche...).

November inflation

The second step in calculating the property tax occurs when INSEE reveals the final inflation figures for the month of November. On Friday, the Institute reported an increase of 3,9% over one year in the Harmonized Consumer Price Index (HICP).

A figure close to the 3,8% inflation over one year announced during the first estimate two weeks ago, and which the tax authorities "take into account" to revalue the amount of the tax base, he specifies on his site.

In November 2022, the harmonized consumer price index stood significantly higher, at 7,1% over one year, and rental values were increased by the same percentage.

“To find levels of increase like that of this year (2023), we have to go back to the 1980s,” recalls Luc-Alain Vervisch, director of studies at La Banque Postale.

Note that the inflation figure taken into account for the revaluation of rental values is the harmonized consumer price index (HICP) - a reference indicator at European level but much less known and commented on in France than the index consumer prices (CPI).

Municipalities and intercos

Finally, the third and final component of the equation is the property tax rate voted each year by the municipalities or intermunicipalities where the owner of the property resides.

In 2023, the City of Paris made owners tremble by increasing its property tax rate by seven points (from 13,5% to 20,5%).

But the capital is an exception. According to the tax authorities, most municipalities (85%) and intermunicipalities (81%) have in fact maintained a property tax rate in 2023 identical to that of 2022.

This stability from one year to the next is “very classic”, comments Mr. Vervisch. “A good part of local authorities have a mandate behavior, that is to say that the rates are increased significantly enough so that it provides resources for several years”.

In 2023, 463 municipalities and five intermunicipalities have even chosen to lower their property tax rate.

After the publication of INSEE figures on Friday, the last unknown will therefore lie in the (inter)municipal property tax rates, which communities can vote on until April 15, 2024.

“The vast majority of municipalities will be satisfied with the 3,8%” increase in rental values, without increasing their own rate, predicts Luc-Alain Vervisch.

“Overall, the closer we get to 2026 (the year of the next municipal elections, editor’s note), the fewer communities you will have which will increase their rates”, to avoid dissatisfying their citizens, he concludes.

Illustrative image of the article via Depositphotos.com.