In this article, we shed some light on the proposed new French tax on holiday homes and put the issues into perspective and show how to calculate the amount you may have to pay. Although it may hit the rich hard, others may not feel the effect quite so much.
A new holiday tax has been approved by President Sarkozy’s Cabinet and will be put before parliament to take effect from 2012 onwards. The tax will be imposed on all those who own a French holiday home and who don’t rent it out on a long-term basis. It could even hit French expats living abroad who are no longer residents for tax purposes, although not if they’ve paid tax for three of the previous ten years, which will probably account for the majority.
The tax won’t have any effect on investment properties such as French leasebacks and properties that are rented out (buy to lets). Second home owners in France already pay two local taxes – taxe d’habitation and taxe foncière – and this one will also be calculated based on the rental value of the property.
“Owning one or more second homes implies that one benefits directly or indirectly from local and national public services, like the police, legal system and national infrastructure,” the Finance Ministry said.
Many are worried that with the already weak pound, this new tax will have a serious effect on the housing market in France, in particular in more rural areas. The number of expats selling up has already increased considerably (doubled in fact in the past year) and this may be one step too far for them.
As the tax is calculated based on the rental value (so dependent on the size and location of the house) you will pay more if your property is located along the French Riviera, in Paris or in one of the ski resorts. However, many would argue that for those who already own such premium housing or are looking to purchase in these areas, the extra levy will be no more than loose change.
The flip side is that for most second home owners who’ve bought a character property in a rural area of France (be it Normandy, the Dordogne, Charente or Limousin) the rental value won’t actually be that much, and thus the amount owners will be levied won’t be very much.
To calculate the charges you might face, look at a copy of your last taxe foncière bill. On the last page, under ‘Taxe foncières – Détail du Calcul des Cotisations’, next to the word ‘base’ should be the rental value of your property. You should see that the various taxes levied by your Council produce amounts that relate to that rental value. The new tax will be 20 percent of that ‘base’ or notional rental value. So 20 percent of that figure is what you’d be liable to pay each year.
We can illustrate this point with a villa located near Allemagne en Provence (in the Alpes de Haute Provence), currently on the market for €577,500, with two acres of land, a pool and five bedrooms. The ‘base’ is €1,914 which is the estimated rental value for the French tax office. The owner currently pays a taxe foncière of €1,046/a year. This new tax equates to an extra €382.80 a year, or €32 a month, which is not a large sum of money, and this is a fairly desirable area of France, under an hour from Aix en Provence.
The bottom line is that this new tax will not set property owners back that much. Hope remains that it may not even come to this – the tax will no doubt be challenged as discriminatory under European law, even though the wording tried to avoid this issue by saying that all who own a second home are liable, even French citizens resident abroad.
An interesting aside: The French will be reforming their own wealth tax, and items such as art work (paintings) and statues will now be taxable and part of the wealth tax calculation. They had previously been excluded from the list when the new wealth tax was created in 1981. The threshold is likely to be €900,000, so relatively high. The tax shield put in place by Sarkozy in 2007 puts the ceiling on the tax at 50% of income but MPs are keen to scrap the shield altogether. Both still remain to be debated, however.
For more information on French property in general and the new tax in particular, go on-line at: www.sextantproperties.com