16.05.2011 3

Real estate: French budget aims to cut deficit by using property tax loophole to raise 176m euros

French government slaps new council tax on foreign-owned second homes

A French cabinet ruling last week has approved a new council tax that will be imposed on property belonging to non-residents. It will affect 360,000 properties across the country, many of which are holiday homes owned by British and Dutch foreigners.

Additional tax on second-home owners: a downer for the property market. Copyright Rennett Stowe

The tax aims to take 20 per cent of a property’s rental value, the rentable cost of a building if it’s on the market. And it is designed to cut France’s gaping budget deficit by about 176 million euros per year.

In France, foreign home owners already pay local property tax- taxe foncière and taxe d’habitation. The new tax will effectively impose a second taxe foncière on their properties.

The tax is part of a finance bill that was presented to the French cabinet on Wednesday.

The bill also contained a package of measures to reform the wealth tax, the super tax on the rich. The bill is expected to pass parliament in time to be made law in 2012.

Property dealers are warning the French government that their new charge will have a damaging effect on the holiday/second home market especially in sunny regions like the Côte d’Azur, where sales of new homes are up 12 per cent this year compared with the first three months of 2010.

Some others experts from the property market have suggested that the tax might be in breach of European Union laws intended to ensure free movement of capital within the EU states.

French Budget Minister, François Baroin, justified the tax on the basis that people with holiday homes pay towards local services through their normal residential taxes, but do not contribute towards national services and infrastructure, even though they benefit from them while they are in France.

The new levy will plug off this loophole and hopes to make housing tax fair to both residents and foreigners.

The new charge will be applied to French citizens who have moved aboard and are no longer French residents. However, it makes an exception to those who have paid French residency tax for at least three years.

At Élysée, the French government announced plans to cut spending by 45 billion euros over the next three years. And it will make savings through closing tax loopholes and withdrawing temporary economic stimulus measures.

For now, the new tax has not provoked any major protests but it may still be too early to say if it will come into force by 2012.

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Comments

Comment by J Brown | 20.05.2011

I have owned a small flat in Cote d'Azur since 1983 and this is purely used by my family for approx 2 months per year. Every year we pay taxe habitation and taxe foncier as well as management costs for the complex. We pay when we use the autoroute,and have private health insurance so apart from defence and education We contribute for 12 months services and only use 2. I think those with holiday property contribute fairly to the system and France would lose a significant foreign income if we decide to go. The budget minister should take this contribution and the amount we spend when living there into serious consideration.

Comment by p short | 06.06.2011

We are in the same position as J Brown comment 20.5.2011. The reason that there has not been an 'outcry' on the proposed additional non-resident council tax of 20 percent is because very few people seem to be aware of it. My first knowledge was reading it in The Riviera Times and having spoken to several people who own property in France they know nothing about it. It is both ill defined and ill conceived and hopefully illegal. I am keen to understand how the government can decide what the 'rentable value' is on a property in a condominium patrticularly as our apartment is for personal and family use?
This type of law will 'put off' potential investors and impact the housing market particularly in tourist areas. We would appreciate The Riviera Times continuing to inform its readers of any changes to this proposal and indeed how non residents can 'have a voice' nationally. The government has stated that this tax covers national services and infrastructure, in reality what that would mean is that anyone non-resident living in France (who does not own a property) are exempt and the people who have invested and pay the current taxes are liable? It is an excuse to tax the very people who have 'bought into the country', spend regularly and contribute to the tax system. It is also a huge gamble to take with investors (for short term gain), and indeed home owners, who are already paying large taxes and costs in France (highest in Europe). French holiday destinations will have a 'glut' of holiday homes for sale, prices will drop and new builds will slow down considerably.

Comment by anne stemp | 13.06.2011

Yet another desperate scheme by governments to pay for their lifestyle by biting the hand that feeds it. Our property in France is currently up for sale because we can no longer afford to go there as intended, there is no longer any "cheap flights" and the cost of hiring a car is prohibitive. The chances of us being able to sell was pretty remote before but with a new tax absolutely impossible. We now have a lifetime of paying tax for a property we cannot use and the privilege of being able to pass on the debt to our children. Buyer beware!!

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