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.
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.