Steep rise in property taxes for foreign holiday home owners in France

Foreign owners of holiday homes in France face a steep increase in taxes after the French government announced it is to increase capital gains tax and tax on rental income.

British owners are likely to be the hardest hit as it is estimated that over 200,000 own second homes in France.
It is part of a declaration by new President Francois Hollande that he wants to tax the rich more. However second home owners are not all well off. Many have had to rent out their homes this year as they need the income due to the poor economic outlook.

Tax on rental income is set to rise from 20% to 35.5% and capital gains tax on property sales from 19% to 34.5%.
Hollande hopes to raise an extra €50 million this year from the increased taxes and €250 million in 2013.

To add to the blow, the rise in tax on rental income will be retrospective, from 01 January 2012 and the increase in capital gains tax is set to apply from the end of this month. So home owners will not be able to escape the higher taxes.

The real estate industry believes it will hit the country’s property market which is already sluggish.Jean-Claude Cassac, the secretary general of the French estate agency federation, in the Dordogne where there are many holiday home owners, described the move as catastrophic.

‘The plummeting pound meant that the English had almost disappeared from the Dordogne house market. With this, it's as if they want to totally kill off the foreign home owner market in France,’ he said.

According to Graeme Perry, a partner at Sykes Anderson which advises British buyers, the effective rate of French capital gains tax will almost double and  the move runs the risk of further damaging the property market in France, particularly at the higher end.

Holiday home owners already pay two other taxes to the French government, taxe fonciere which is paid by the house owner and taxe d'habitation which is paid by those who live in it.

Under the double taxation system, UK residents deduct any tax paid at source in France on French gains from the UK tax on the same gains. But if the French tax is higher, they will receive no rebate.

However, the decision may be open to claims of discrimination. ‘We will need to study the details. But we will of course challenge any proposal which breaches European single market laws and anti discrimination rules,’ a Treasury source told the Daily Telegraph.