Foreign owners of holiday homes in France face a steep rise in property taxes, some of which are being backdated to the beginning of the year.
There is fury among British second home owners in particular as they make up the vast majority of holiday home owners in the country, with over 250,000 of them in popular areas such as the Dordogne and Normandy.
However, there is a chance that the British Government will challenge the new taxes that have been put forward by new French President Francois Hollande. A Treasury official said that they would examine whether or not the new taxes breach European single market laws and anti discrimination rules.
Under Hollande’s plan tax on rental income is set to rise from 20% to 35.5% and capital gains tax on property sales from 19% to 34.5% for foreign owners. Hollande hopes to raise an extra €50 million this year from the increased taxes and €250 million in 2013.
To add to the blow, the rise in tax on rental income will be retrospective, from 01 January 2012 and the increase in capital gains tax is set to apply from the end of this month. So home owners will not be able to escape the higher taxes.
The real estate industry believes it will hit the country’s property market which is already sluggish. Jean-Claude Cassac, the secretary general of the French estate agency federation, in the Dordogne where there are many holiday home owners, described the move as catastrophic.
‘The plummeting pound meant that the English had almost disappeared from the Dordogne house market. With this, it’s as if they want to totally kill off the foreign home owner market in France,’ he said.
According to Graeme Perry, a partner at Sykes Anderson which advises British buyers, the effective rate of French capital gains tax will almost double and the move runs the risk of further damaging the property market in France, particularly at the higher end.
Under the double taxation system, UK residents deduct any tax paid at source in France on French gains from the UK tax on the same gains. But if the French tax is higher, they will receive no rebate.
It is understood that when previous President Nicholas Sarkozy proposed a similar hike in property taxes it was also challenged by the British government.