Earlier this year the previous 15 year exemption was doubled to 30 years but now the French government has reduced it to 22 years after intense lobbying from the property industry claiming the decision was putting off foreign buyers.
From 01 September those owning a second home in the country for more than 22 years will have complete exemption from CGT.
Graham Keysell of Paris based Spectrum IFA Group said that the 30 year policy had dissuaded a number of his clients from selling their second homes and he pointed out that not only is CGT imposed on French property, but it also applies to properties in the UK owned by expats.
He said that one of his clients was facing a bill of over €83,000 (£70,000) on a flat she has owned in Devon for the past 25 years.
Lindsay Kinnealy, head of international property at UK based Pannone Solicitors said many Britons with homes in France will welcome the initiative. ‘The move represents a tremendous potential benefit to individuals who might have owned second homes in France for some years but been looking to sell, either because they had become too old to visit regularly or because their children were not interested in taking them on,’ she explained.
‘Even though they will still only be eligible after 22 years, that represents a significantly shorter period of time than before, and makes the value of hanging onto their French property far greater,’ she added.
There is also a proposal currently being considered in France for a one off 20% CGT discount for sales of second homes completed in 2014, regardless of how long they have been owned, in a bid to get the sluggish French property market moving.
But second home owners are being urged to check their tax situation as not paying CGT tax on a property sold in will not help most UK residents as they will still have to pay UK CGT on any gain in value realised upon resale of their French property.
According to Matthieu Cany managing director of Sextant French Property said his firm also found that the 30 year rule affected the property market. ‘Many owners of holiday properties in France gave up putting their property on the market or said that they preferred to wait for a better time like the next elections which are due in 2017,’ he said.
He said the announcement was good news and it will have an immediate effect because it takes three to four months to finalise the sale of a home in France so that current sales will be involved straight away giving more confidence for French sellers to put their properties on the market.
But experts warn that it while it may boost the second home market this represents less than 8% of transactions in France so the scope of the measure is limited. Also main residences in France are still exempt from CGT.
‘Changing the tax rules every six months will certainly not help the market and bring confidence. Moreover, in the current context of low purchasing power and rising unemployment in France, there are not many French looking to buy second homes,’ said Cany.
There is also the risk that the CGT ceiling could be raised again in the future and if the one off discount is approved for 2014 this may boost sales next year but then depress the market again when it ends.
‘Owners who were hesitating to sell their holiday home in France should benefit and those who were hesitating about buying might now do so,’ added Cany.
