French Holiday Home tax planned

Last post: Jul 5, 2012

The French change tax laws on foreign property ownership.

The French Government have revealed that they plan to increase the taxes charged on foreign owned holiday homes. The increase is twofold: firstly the tax on rental income of foreign-owned second homes will increase from 20% to 35.5% applied RETROSPECTIVELY from Jan 1st 2012; and secondly the rate of Capital Gains Tax on disposal of a foreign-owned second home will increase from 19% to 34.5% effective from the end of July 2012. Like many European governments the French are desperately trying to plug gaps in their budget and looking at ways to raise extra funding. Foreign holiday home owners are, of course, a soft target as they don't vote so it shouldn't come as a surprise that this is being planned - indeed the idea was first mooted during Nicolas Sarkozy's tenure in office - but what is a surprise is the scale and retrospective nature of the taxes. UK Treasury officials have said they are reviewing the move and the inference is that they will be examining whether it is complicit with EU legislation. They have also indicated that if they believe it wasn't, they would be prepared to challenge it. The bigger picture here though is what kind of message this sends to the world about doing business in France. I have to feel that foreign investors will look at this and see that if they are being singled out to pay for the country's woes because they can't vote and therefore cannot defend themselves and if they see a situation where they can't reasonably plan their tax affairs without fear of retrospective taxes being applied then it will surely put them off doing business in France. Indeed what may be a populist short term move that, as far as the French voter is concerned, "hurts nobody" could well have long term consequences. The contrast with, say, the British situation where even with a similar desire to raise revenue the Government never applies retrospective taxes and is even giving clarity on Corporation tax rates for the next 3 years or the Irish situation where even faced with their darkest economic hour they have not budged on their 12.5% Corporation Tax rate (which is mainly to the benefit of foreign owned multi-national companies) is quite stark. I should be clear though that so far the taxes are just planned and haven't actually been passed into law yet. The one impact this may have is cause a flurry of sellers of UK property in the short term before the CGT increases come in. If this does tempt anyone to buy in France then do please read our Guide to French Mortgages here and contact us on 0845 1260350 for further details