New property taxes for overseas property owners in France approved
04-09-2012
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Opinions on the likely effect of the new tax on non resident property owners and the new wealth tax vary enormously with the more pessimistic talking of a property slump.
But experienced French real estate agents dealing with overseas buyers do not think they will have much effect as people will always want to buy property in France as it is consistently seen as a safe place to invest and a great place to live and work.
‘France consistently tops the polls of having the highest quality of life in Europe and unrivalled healthcare and education systems are the bedrock of this quality. Most of the policies brought into place simply bring European owners of property in France into line with current French residents,’ explained Trevor Leggett, chief executive of international agents Leggett Immobilier.
‘The very top end of the market is going to see a hit with wealthy individuals being directly targeted by the tax and financial policies but overall I don't think that the new regime will have a dramatic effect on the general housing market,’ he said.
He believes that of much more importance will be whether agents and vendors bringing houses onto the market decide to price their properties sensibly. ‘If they do then the market will continue to move. However, if they are greedy and they overprice to compensate for higher taxes then the market could stall. This would lead to a reduction in overall transaction numbers and a resultant drop in market value,’ he added.
The new tax for overseas owners is being back dated to 01 January this year with the total tax liability on rental income increasing by 15.5% to 35.5%.
But Leggett points out that for UK citizens some of these charges can be offset due to the France/UK double tax treaty. He says it is essential to get professional advice to determine the level of your individual exposure.
The tax on property gains has increased to 34.5% from 19% for European Union residents but deductions can be made for every year of ownership after the first five years. Years six to 17 give a 2% reduction, years 18 to 24 give a 4% reduction and years 25 to 30 give an 8% reduction. French notaires have been told to deduct the tax directly upon completion of the house sale.
But Leggett also says that there is still a question mark over the fact that this tax was originally drafted as a social security charge but is now being called a gains tax. The European courts ruled that it is not legal for a member state to charge a resident of another member state social security charges.
'However, because of the subtle change in wording this will not stop the government implementing the tax, which, in any case, is only equal to that paid by French residents so seen as fair in its application,’ he explained.
French wealth tax is calculated on 01 January each year and is payable by those residents with assets worth over €1.3 million. Returns have, of course, already been submitted for 2012 but President Francois Hollande has introduced a one off exceptional contribution where individuals pay the difference between the old and new rates.
The tax is based upon the wealth of the household and unmarried couples living together are treated as one household.
He also points out that the market value of a person’s principal residence in France can be reduced by 30% for wealth tax purposes. ‘Clearly you should seek professional tax advice based upon your individual circumstances but the changes mean that, for some individuals, it may well be worthwhile looking to buy your property through an SCI, that is a French property holding company, using the corporate tax option so that the property is not included in wealth tax calculations as it belongs to a company or professional venture capital fund,’ said Leggett.
‘Equally it makes more sense than ever to fund the purchase through a mortgage, while rates remain this low, which will reduce the amount of capital held in France by non-residents,’ he added.
Measures are also being put in place to further modify the exit tax that was put in place by the previous President Nicolas Sarkozy in March 2011. Those with two children and assets below €200,000 should not be concerned by the changes but those over this threshold should continue to monitor the news coming out of the National Assembly.
