Proposals from the French government to introduce a new 20% tax on second homes in France owned by non French residents is causing some concern for potential property buyers.
It is estimated that 360,000 non-resident French property owners could be hit by the new tax that is expected to raise €176 million as part of a finance bill that also addresses issues such as a reform of the wealth tax. If passed by the French parliament in July it will come into force on 01 January 2102.
Experts though point out that owners who rent out their homes may be exempt from the tax that will be calculated on the annual unfurnished rental value of the property. And leaseback properties which, as part of the French government program established in the late 1960s, are rented out for a set period each year, can also mean owners avoiding the second tax.
‘It appears to be very popularist proposal to win votes in an election year. They do not attract foreign investment, may conflict with European Union principles and therefore may well not be agreed,’ said Charlie Williams, business development manager at Terresens.
‘Potential property buyers should not be put off buying in France as leaseback properties, by their very nature, will be exempt from this proposed new tax,’ he added.
Property lawyer, David Anderson from Sykes Anderson LLP, agrees. ‘If the property is rented and so not freely available to the owner the tax will not apply. This means leasebacks will not be affected,’ he explained.
Some real estate agents who specialise in selling to non-residents are critical of the proposed tax. ‘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 political manoeuvring of Francois Baroin and the current government,’ said Trevor Leggett, chief executive of Leggett Immobilier.
‘This proposed tax of 20% is an idea that came about without any consultation of those of us within the industry,’ he added.
The decision to introduce a new tax is aimed at bringing in more money from homeowners, as currently the annual property taxes are low compared with other European countries. But Leggett believes that officials should not be taxing people who are investing in the country.
‘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,’ he said.
‘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.
‘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,’ he added.
Leaseback is one solution. They have risen in popularity in recent years compared to classic second home purchases in France due to the security they offer, according to Williams.
Under a leaseback they buyer has freehold ownership of a property in France, guaranteed rental income (index linked) derived from the lease of the property to an appointed management company as well as personal usage throughout the year. In addition VAT is refunded, a considerable saving of 19.6% for buyers.
‘France will remain one of, if not the most popular choice for second property abroad with Brits and indeed many other nations. Leasebacks offer a safe, secure and hassle free way of owning a home in France and its exemption from this proposed new tax is further evidence of the programme’s merit,’ said Williams.