French Tax on Holiday Homes Could Hit 360,000 Non-Resident French Property Owners

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A proposed French property tax on second homes could affect many of the 360,000 non-resident French property owners. The mooted 20% tax is to be levied on second homes in France owned by non-residents and calculated on the annual unfurnished rental value. However, owners who let their property or declare it as their principal dwelling will open exemption to the tax.

Recent figures released by the FIAM indicate that the French property market is starting to make a healthy recovery. However, many in the French property sector feel that such a levy would be poorly timed and inhibit growth. Trevor Leggett, Chief Executive of Leggett Immobilier - http://www.frenchestateagents.com - comments:

"The French property market has only just weathered the storm created by the incompetence of the banking sector, and could now be led into even more turbulent waters by the polical manouvering of Francois Baroin and the current government. This proposed tax of 20% is an idea that came about without any consultation of those of us within the industry."

The tax, expected to raise €176 million, is part of a finance bill that also addresses issues such as a reform of the wealth tax and, if passed through parliament in July, could come into force in 2012.

However, although unhappy with the proposals, Mr Leggett believes that the tax needs to be seen in context:

"At present, capital gains tax (CGT) levied on second homes is unfairly balanced in favour of non-residents and the current taxes, 'Taxe Fonciere' and 'Taxe Habitation', are significantly below the comparable council tax rates in the UK and continental Europe. This is partly why property here in France is so attractive as an investment. It is this imbalance of international property tax that the Government is trying to redress - but we believe that there would be better ways for M Baroin to tackle the issue. International buyers have a hugely positive effect on local economies and creating barriers to entry like this would be an unnecessary step backwards for the property industry and the economy as a whole.

With the current, favourable, taxation regime in France an increasing number of UK and European citizens are looking to retire over here and we believe that there are far more efficient and equitable ways for the Government to balance the books.

It is noteworthy that the proposed reduction in the ISF (French wealth tax), the increased thresholds for inheritance tax, and the lower income tax for many retired people, all suggest that Sarkosy and his government may be trying to entice UK and other EU Tax payers to take up fiscal residence in France. The second home tax would support this idea by encouraging unofficial residents to declare their residency in France . By spending 183 days a year in France rather than the UK an owner of property both in the UK and France would not pay the second home tax and may get up to 50% discount on their council tax in the UK."

Whether this tax will actually come into force, and its effectiveness, is still under is debate. There are questions of legality under European law and speculation over loopholes that would help investors minimise liabilities.

The progress and analysis of the proposals can be followed at http://blog.frenchestateagents.com.

Trevor Leggett is Chief Executive of Leggett Immobilier, the leading international estate agency in France.

About Leggett Immobilier.

Leggett is an independent, family run business based in France with a network of over 120 fully trained commercial agents covering most of the country. Leggett offers an unrivalled mixture of local knowledge and national expertise, professional service and full after sales support. The Leggett webite http://www.frenchestateagents.com/french-property-for-sale lists over 6000 French properties.

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