French CGT changes could see rush of sellers on market

CGT in France favors investors

French property owners who have owned their property for more than 15 years and who were thinking about selling it will push to do so before the end of October to avoid paying the country’s new Capital Gains Tax, according to real estate agents.

The French parliament has approved changes to CGT which are expected to come into being on 01 February 2012 if, as predicted, they are also approved by the Senate.

As it usually takes three months from a sale being agreed to the sale taking place, people wanting to avoid paying the new higher rate of tax will need to agree a sale by the end of October.

This could see a rush of properties coming onto the market, according to Matthieu Cany of London based Sextant Properties.

The new CGT rules will also affect those with second homes and those who own a French property that is not their main residence. Currently, when you sell a property in France there is 10% abatement per year after five years of ownership. Thus after 15 years of ownership, there is no CGT payable.

The new CGT changes mean that there will be a 2% abatement per year after five years of ownership until 15 years of ownership, a 4% abatement per year during years 16 to 25, an 8% abatement per year during years 26 to 30 and no CGT after 30 years.

It effectively means that the tax rate for non main residences will increase from 31.3% to 32.5% for French residents and will remain at 19% for non residents, Cany pointed out.

In the short term, he believes that it will increase the number of properties coming onto the market in the coming weeks and this could lead to prices falling.

In the long term he predicts that properties, which haven’t been sold by 01 February 2012, will be taken off the market and owners will wait a few years to have more abatement. ‘People who don’t have to sell will be waiting longer and will be less inclined to negotiate the asking price so we expect a decrease in the number of properties on the market,’ said Cany.

John Busby, director of French Private Finance also expects an increase in properties coming onto the market in the coming weeks. ‘This move will benefit those existing French property owners who wish to benefit from the old regime. I expect there to be an increase in supply over the next few months as French based owners look to cash in their asset before the tax increase in February,’ he said.

‘It is worth pointing out that UK based and other international investors will only pay 19% on any gains under the new regime and not the 32% payable by French resident owners. Overall the situation has not changed much for would be owners of French property as any gains in France are still liable for UK CGT,’ he added.

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