French Property Tax Changes – English Owners Read On

New Property taxes in France – effect on UK owners?

There is a new Government in France and as so often an incoming Regime wants to make immediate changes and to signpost its arrival. Being Socialists and also being in the Eurozone, the new Government both wants and needs to raise tax.

Previously the Foreign based (that is, domiciled and/or resident outside France) owner of property in France benefitted from lower income tax on rental receipts (if unfurnished) and lower rates of capital gains tax. However, most British owners who let their French properties out do have the properties fully furnished so the rental changes probably will not affect them.

It is the capital gains tax changes which have caused the most anxiety. It is only a year or so ago, that the full liability to capital gains tax for non French-residents was only 19%, and no tax at all would have been payable if the property was sold more than 15 years after purchase. The present position is that the full liability is now 34.5%, and a property has to have been owned for thirty years before it can be sold without tax to pay.

So, on the face of it, both the rate of the tax and the period of ownership before it reduces to nil have pretty much doubled.

The knee-jerk reaction could be to think that “the cost of owning in France has just doubled”. And no doubt costs will increase. However, most British owners in France have not invested there to make a quick buck. They have bought a house in France in order to enjoy holidays, perhaps to have somewhere to retire. Prices in France are low when set against house prices here in England, and the differences in weather and lifestyle will continue.

Also, even when the French top rate of 19% was payable in France, the top rate on capital gains for residents in UK was 28% meaning that a further 9% of the gain had to be paid to the UK taxman in any case. Accordingly, the new regime can be seen as an actual rise, so far as an English resident is concerned, of “only” 6.5%.

So perhaps, these latest rises are not the end of the world. And in themselves no reason to abandon the dream of a second home in France, if that should be your dream.

The larger concern however, with a continuing Euro crisis which just seems to get worse, is what might be around the corner if the present changes are to be seen as merely a new Socialist regime’s “opening move”. As always the biggest challenge to a housing market, whether in France or anywhere, is a lack of confidence.

I am not a financial advisor (and I hope you already have one!), yet as a Notary I do get asked for my advice.

In respect of a French second home, I would say “Don’t buy in France in order to get rich; that would be most unlikely. It shouldn’t be about the money. Buy there if you love France, and when you have bought a house there, keep it for all your life, go there as often as you can and spend as long there as you can, and that is the way to get value for your investment”.