Rules regarding taxation and concubinage: a breakdown
Living Together, Different Tax Rules
Embrace the lifestyle, but remember the financial implications - cohabitation brings its own set of tax rules. Unmarried, without Civil Solidarity Pact (PACS), you and your partner are considered as single entities for income tax, forming individual tax households, yet a common household for wealth tax. Here's a simple guide to filing taxes while cohabiting.
Getty Images By Léa Boluze Web Editor Updated on
Table of Contents
- Does cohabitation matter for taxes?
- Free Union vs Notorious Cohabitation
- Is cohabitation declaration mandatory for the tax office?
- Advantages of declaring cohabitation for taxes
- Cohabitation impact on income tax
- Wealth Tax and Cohabitation
- Housing Tax and Cohabitation
- Land Tax and Cohabitation
- Declaring cohabitation for taxes
- Benefiting from tax reductions or credits in cohabitation
Does cohabitation matter for taxes?
Understanding Cohabitation
Cohabitation refers to a couple living together, whether male-female or same-sex, without legal ties such as marriage or PACS. As defined in Article 515-8 of the Civil Code, it involves a stable and continuous life together, often informally referred to as a free union. Unlike married and PACS couples, cohabitants maintain full legal and patrimonial independence.
Single Taxpersons
From the fiscal perspective, cohabitants are treated as single individuals, contributing to the formation of two separate tax households. Unlike married and PACS couples, joint declarations for income tax are not possible in cohabitation.
Free Union vs Notorious Cohabitation
Free union and cohabitation, while similar, have a subtle difference. The free union is a general term that implies living together, while cohabitation is a legal classification with continuous, stable life confirming its legitimacy as a committed relationship recognized by the law.
Is cohabitation declaration mandatory for the tax office?
No Obligation for Taxes
Declaring cohabitation is not compulsory, unlike PACS or marriage. Each cohabitant will identify as an individual taxpayer for the tax administration, declaring their income and filing their personal tax return.
Social Benefits and Tax Declaration
Those receiving certain tax benefits or social benefits (activity bonuses, family allowances, RSA) must declare their cohabiting status, as it impacts their calculation. Additionally, for specific sections of the tax return (attachment of children, declaration of a dependent person), it may be necessary to disclose one's cohabiting partner.
Advantages of declaring cohabitation for taxes
Income Tax Reduction
Declaring cohabitation can enable you to avail of particular tax advantages. The income tax reduction allows taxpayers with lower incomes to reduce their tax burden up to a capped amount, revised yearly. In cohabitation, partners can benefit from this discount, unlike married or PACS couples filing jointly.
Cohabitation and Tax Deductions
Sharing expenses and having children can be considered in certain tax deductions, like tax credits for dependents. Each cohabiting partner can also deduct expenses up to an annual cap of 10,000 euros, or a total of 20,000 euros for the couple, thus maximizing their tax reductions.
Access to Social Assistance in Cohabitation
Cohabiting partners, recognized as single taxpayers for the declaration of their taxable income, may continue to benefit from certain social benefits such as housing benefits, family allowances, and specific pensions.
Cohabitation impact on income tax
Income Split not Available
The downside of cohabiting is that each partner will file their income tax separately and only benefit from their personal share of the family quota without the option to split income to lower overall tax amounts.
Child Deduction in Cohabitation
In the case of cohabiting partners with children, they have two options - declare all minor children and dependent children under 21 (or up to 25 if they are still studying) on one partner's tax return, or divide the children between the two partners, with each partner taking responsibility for a child. In this scenario, a single child cannot be listed as a dependent for both partners. It is more advantageous to attach the child to the higher-income partner, so they benefit from a reduction in their taxable base.
Real Estate Wealth Tax and Cohabitation
Unlike income tax, the IFI takes cohabitation into account when assessing wealth tax.
IFI and Cohabitation
The Real Estate Wealth Tax (IFI) targets individual wealthy homeowners with a net real estate worth surpassing a certain threshold. Unlike the income tax rules for cohabitation, IFI treats cohabiting couples as a singular household. If the partners' combined personal real estate assets exceed the combined threshold of 1.3 million euros, they must file a joint declaration for IFI. Despite not being considered solid for payment, cohabiting couples remain jointly and severally liable for paying the IFI, each receiving separate notices for payment.
Housing Tax and Cohabitation
Abolition of Housing Tax on Primary Residences
As of 2023, no French person pays housing tax on their primary residence due to a tax reform designed to ease the burden on households. Certain municipalities retain the authority to increase housing tax on secondary homes to tackle housing scarcity.
Secondary Homes and Housing Tax
Today, only owners of a secondary home are liable for paying housing tax. Calculation procedures remain the same; each property is subject to an individual housing tax. If a property is occupied by a cohabiting couple, only one housing tax is established in the name of one occupant. Couples share the tax burden rather than the administration.
Property Tax and Cohabitation
Personal Real Estate Ownership
Each owner of personal real estate, regardless of whether cohabiting or not, is liable for the property tax based on the properties they own as of January 1 of the tax year. As cohabiting partners, they are jointly and severally liable for any unpaid property tax, regardless of their individual shares of ownership.
Shared Ownership
When cohabiting partners own real estate jointly, the tax administration establishes a property tax notice in both partners' names. They bear joint and several liability for the property tax payment.
How to declare cohabitation for taxes?
Declaring Income Tax
Cohabiting partners don't require a special declaration to report their cohabitation, as they are treated as separate tax households. Each will file an individual tax return, reporting their personal income and expenses. No explicit declaration of cohabitation to the tax administration is necessary.
Benefiting from tax reductions or credits in cohabitation
Cohabitation-Specific Tax Benefits
Benefiting from tax reductions and credits in cohabitation is case-specific, as most benefits are oriented towards married or PACS couples. Consult a tax professional for personalized advice to determine eligibility.
In most cases, tax reductions and credits (e.g., domestic employee employment, donations, energy renovation work, etc.) are exclusive to the partner who incurred the expense, and can only be claimed by them. However, for shared expenses (e.g., common expenses, childcare costs), each partner can declare their proportionate share, provided they can justify the distribution.
For personal-finance purposes, it's essential to understand the tax implications of cohabitation. While cohabitants are treated as single individuals for income tax, they form a single household for wealth tax.In terms of income tax, declaring cohabitation can enable taxpayers to avail of tax reductions, such as those for domestic employment, donations, and energy renovation work, among others. However, other benefits, like marital deductions, may not be available to cohabitants.
