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French property tax: will François Hollande's plans affect you?
If you own a second home in France, you might be concerned about Francois Hollande's planned tax increase. Lorna Bourke investigates.
Are proposed tax increases on rental income and capital gains (CGT) on French holiday homes really that bad? Probably not, because there are ways of minimising liability. In addition, few people pay rental income tax anyway.
The new socialist president, François Hollande, is proposing an increase in CGT on second homes from 19% to 34.5% as a result of adding the social charge of 15.5%. This is what French residents have to pay, so UK owners are no worse off than if they were French.
Tax on rental income will rise from 20% to 35.5%, again because of the addition of the 15.5% social charge. The increase in tax on rental income will take effect from 1 January 2012, and the rise in capital gains tax is set to apply from the end of this month.
Hollande hopes to raise an extra €50 million this year from the increased taxes and €250 million in 2013.
‘This is an interesting move in that it effectively brings non-French residents into line with how French residents are taxed if they let or sell their property,’ said a spokesman for Blevins Franks, tax experts specialising in tax and wealth management for UK expatriates.
How it will affect you
Depending on a UK owner’s rate of income tax, the changes will have little or no effect. UK taxpayers are liable for both UK income tax on foreign rental income at up to 50% and CGT on profits made on the sale of a foreign property up to 28%.
The fact that many British homeowners evade tax by not declaring this income or profits doesn’t alter the fact that they are technically liable. Any tax paid in France is, in any case, offsettable against the UK tax liability.
Nobody knows how many UK residents own homes in France because there is no requirement to declare ownership of foreign property to the tax man – although there is a requirement to declare any rental income or profits on sale of an overseas property. But an estimate of 200,000 UK owners looks far too low.
Most home owners will have bought their property with a mortgage and this will be deducted from the sale price before any CGT is calculated along with any costs of renovation – provided you have paid VAT on the restoration and can produce the bills. If you paid cash, costs will not be allowed.
Many people will have no gains anyway as house prices in France in most areas have been falling in recent years just as they have declined in the UK. CGT is not likely to be a big issue for those who have bought in the past five years and there is relief for long term holders of French property.
Similarly, even if you embark on letting your holiday home commercially, rather than allowing friends to use it and make a ‘contribution’ to the running costs, the average holiday home rents for a maximum of 20 weeks a year and an average of only 10 weeks.
Because of the cost of heating, it is usually uneconomic to rent from the end of October to the beginning of May – even if there is a demand from potential tenants – and most agents admit that owners will simply cover their costs.
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