Property Tax: Owners, Facing Increases, There Are Solutions

The start of 2024 brings new developments regarding property tax. Property owners are already receiving their tax notices, often accompanied by significant increases.

Our experts at RSM offer an overview of the changes and solutions that our audit and consulting network can provide.

Property Tax: What Are the Main Changes and Increases?

Residential and Industrial Premises

The calculation base for both built and unbuilt properties has increased again this year, as rental values have been indexed at 3.9% as of January 1, 2024, although this is below the peak of 7.1% reached in November 2022. Additionally, some municipalities have voted for significant increases in tax rates. The combination of these two factors leads to an increase in property tax that can exceed 20% in certain areas.

This rise is partly due to the abolition of the housing tax on January 1, 2023, which was previously paid by all residents, whether owners or tenants of primary residences. Many municipalities responded by raising their tax rates to compensate for this loss of revenue.

So-called Professional Premises (Shops, Offices, Warehouses)

The revision of rental values in 2017 had significant consequences for these premises, with the shift from rental value 70 to the updated rental value. Their land bases literally exploded (removal of certain weightings, increased taxable surface area, higher rates per square meter…).

Since 2017 and until 2026, the amount of their contributions is temporarily and artificially maintained only thanks to the mechanism of floor and smoothing, which helps mitigate the surge in property tax contributions. Unlike residential and industrial premises, where rental values are indexed by a fixed revaluation coefficient, professional premises’ rental values are updated annually through a revised pricing grid.

Before 2017, a property built in a municipality was evaluated against a reference property of the same type (construction type, purpose of the premises, etc.) located in the same municipality and built in 1970. This reference property served as the pricing standard for any new professional premises. As a rule, this tariff was never updated, and the land base was only revalued by the annual revaluation coefficient.

Since 2017, these same premises have been subject to:

• An increase in the municipal rate,
• A constant upward revision of their tariff grids (annual updates), and in some municipalities, an increase in the location coefficient applied to plots. These increases, which affect the calculation of the rental value of the building, directly impact the land base of the Corporate Property Tax (CFE) for companies that operate these premises.

These successive increases create a sense of fiscal insecurity, both for owners and operators of these premises. 

Property Tax can represent up to 2.5 months of rent, or even more. In some cities, such as Caen, Angers, Grenoble, Montpellier, or Le Havre, the rate has even exceeded 50%, significantly reducing rental income.

Sustainable Reduction of Property Tax: Is It Possible?

While it is not possible to directly influence the tax rates voted by municipalities or the pricing grids, there are ways to intervene on the taxable base. This allows for a sustainable reduction in property tax.

Solutions for Industrial Establishments

Industrial establishments are evaluated based on an accounting method that considers the original value of buildings, land, and their arrangements.

Recent judicial decisions allow for a real cleaning of the fixed assets included in the calculation of the taxable base (equipment and specialized assets, movable assets, maintenance work, etc.), thus significantly reducing the property tax base as well as the Corporate Property Tax (CFE) base.

Levers for Professional Premises

There are levers to adjust the taxable base for property tax. Actions can be taken on the category of the property, and thus the rate applied, on the actual surface area, its division, and the weightings applied to it. These levers can significantly influence the situation of owners:

• Owner – Landlord: :
  A reduction in local taxes has a real impact on the vacancy rate of a property since, in addition to retaining the tenant through lower charges, this reduction allows for more competitive rents for future leasing. Especially since the tenant company operating the premises is doubly penalized by these increases, which affect both:
  1.  The Property Tax, recharged by the owner
  2. The CFE, paid directly by the tenant for operating these premises.
• Owner – Seller :
  The weight of local taxes in a real estate transaction cannot be ignored. On one hand, it will significantly influence the negotiation of the sale price. On the other hand, this fiscal burden can discourage investors due to the cost it represents.

• Owner – Operator :
  Operators feel the economic weight of the Property Tax and Corporate Property Tax (CFE) more acutely. Unlike landlord owners, they cannot pass on the Property Tax to a third-party tenant. By directly operating their premises, they must also pay the CFE, which exposes them to a double fiscal burden. The increase in rental value thus leads to a direct rise in both Property Tax and CFE, significantly impacting their budget.

   

RSM Advice

The analysis of the rental value of professional and industrial premises requires both technical, legal, and fiscal expertise in order to better understand the financial stakes.

RSM experts are available to assist you in determining a rental value and guiding you through these tax increases.