Business World

Saturday 24 March 2018

Francois Hollande announces French tax grab on holiday homes

President Francois Hollande is seeking to tax the better-off
President Francois Hollande is seeking to tax the better-off

Henry Samuel in Paris

IRISH owners of holiday homes in France are to be hit with punitive tax rises under plans announced by the new Socialist government.

Those owning second homes in areas such as the Dordogne and other parts of France, particularly those serviced by budget airlines will be hit as President François Hollande seeks to tax the better-off to reduce France's large budget deficit.

On Wednesday, the French government announced it was to increase taxes on foreign-owned second homes. Tax on rental income would rise from 20 per cent to 35.5 per cent, and capital gains tax on property sales would rise from 19 per cent to 34.5 per cent. The extra in each case is being labelled a "social charge".

The rise in tax on rental income will be retrospective, from Jan 1 this year. The increase in capital gains tax applies from the end of this month, meaning property owners will have little time to escape the increased tax by selling their homes.

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

The tax rises are part of a wider package of increases that are intended to raise €7.2 billion to meet a budget deficit target of 4.5 per cent after the government of Nicolas Sarkozy left the French exchequer with an expenditure black hole.

An additional €2.3 billion will be raised from a levy on those whose net wealth is €1.3 million.

"If the law is introduced, the effective rate of French capital gains tax will almost double for EU residents on their French property capital gains," said Graeme Perry, a partner at Sykes Anderson, which advises British citizens on French residences. He said the move ran the risk of further damaging the property market in France, "particularly at the higher end".

The French finance ministry said the new rule would affect about 60,000 rental properties in France whose owners made an average profit of €15,000.

It said this would add €50 million to French revenue this year and €250 million in 2013. Jean-Claude Cassac, the secretary general of the French estate agency federation, in the Dordogne, said the new move was a "catastrophe".

There are an estimated total 360,000 non-resident second home owners in France.

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