Experts point to ways round proposed new French second home tax

New tax for French second homes of foreign ownership

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.


9 Responses to “Experts point to ways round proposed new French second home tax”

  1. Expatandhappy

    Seems fair to me – if you don't pay income tax in France you should contribute since you use the roads etc. Non Doms in the UK get hit much harder.

    Reply
    • But they still have to pay the equivalent of council tax and as a foreigner they have to pay 2x the amount the French have to pay, there's also an additional tax for non-residents – so they do in fact pay for their local services, through the nose.

      Reply
    • French second home owners do already pay tax. Tax d'Habitation and tax Fonciers . This tax woud be in addition to these.

      Reply
  2. PARGBAJAN

    Surely it is against the Human Rights Bill to force an owner of a property to rent it out. If a second home has been owned for say 20 years and never been rented, how can the Government impose this sort of tax? Furthermore how will it be policed, eg how will the authorities know that you are not living there for say 11 months of the year? Will there be an army of little home inspectors going around the country and knocking on all the "maisons secondaires"?

    Reply
  3. loraine

    How many people have bought properties which are hardly suitable for habitation never mind renting out. Many properties are not suitable for rental so what happens here? .

    Reply
  4. Paul Bennett

    I would like to mention that my wife and I have invested nearly every penny of our money ( we rent in England ) as well as many months of our time, into buying and bringing back to life, a vey run down property in France. Many other English, Dutch and others have done the same and in doing so have not only saved many hamlets from near extinction but have breathed life into many French businesses. I have spent over 200,000 euros in France so that my wife and I can eventually live the French life that we crave for. We have also paid all taxes fonciere and land tax and only spend time there working on the property. We only use the roads to go to purchase from French businesses and we pay our car insurance etc. It would seem at every turn someone wants to make even more money out of those that are investing in France. Look at Limoges Airport. We all fly in and spend much of our money with the French and suddenly in a country with enormous space, put barriers up and charge a relative fortune to park. Cutting their nose to spite their face comes to mind. I absolutely adore the country, the language, the people and my french neighbours especially, but the likelyhood is that if I have to pay a tax because I am not renting my home, because we cant afford to move to France yet, ( because an Artisan ripped us off ) we will just sell up. I have already spoken to a number of people who actually own a home in England and a second home in France and they will all sell up if this tax applies to them.

    Perhaps, we have mistunderstood, and it does not apply to small barn or house renovations, but if it does, could this be the end of rural France as the English pull out?

    Interested to hear others views?

    Paul and Gerry

    Reply
  5. It seems very unfair, we have a second home in the UK and pay council tax with a 10% reduction. We have a second home in France and already pay taxe d'habitation and taxe fonciere with no reduction and now they want another set of taxes from us. It's cheaper to get a second home in the UK now and with the exchange rate so bad then France is simply too expensive. What on earth are they thinking of, people will just stop investing there.

    Reply
  6. shirley mincher

    We have a second home in france and already pay 4000 euros a year in the 2 taxes. We have owned this home for 19 years and enjoyed the time spent there but I am affraid this new property tax has left abitter taste in my mouth.Its immoral unjust and spiteful.We do not want to rent out our property and have never done it illegally always upholding the law of the country but it makes you wonder whether honesty pays. Now the cost increase on top of what we alreay pay will either make us sell, if you can which is highly unlikey when the purchaser realises how much taxes they will incurr or rent which involves allsorts of anxiety beaurocracy and not even knowing if you are going to make any money renting it.I do hope that likeminded people wil try to voice their opinion and see if together we can stop this,if not let the french government know how we all feel.Ipersonally feel sad,angry,and totally uncomfortable in a country which I once loved.

    Reply
  7. Richard Reader

    I agree with most of the comments above. I have written an article for our Saintes monthly paper, and letters to our (UK) MEPs, the Mayor, the Chamber of Commerce, our Deputé, our 3 Sénateurs and others. I have tried to copy in below an example of my letter to Sénateurs, but that makes this comment too long for this website. So I just observe that in a very approximate calculation of the loss to the French economy if as few as 10% of UK second-home-owners were to sell up, I estimate a net loss of maybe €250,000,000pa as compared with the product of the new tax if nobody sells of maybe €100.000.000pa. So not only is it unfair, but it doesn't make economic sense if even a small percentage of us sell up and are not replaced by other foreigners.

    Reply

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