Wealthy buyers returning to French property market due to tax clarifications

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Wealthy buyers returning to French property market due to tax clarifications

Wealthy buyers returning to French property market due to tax clarifications

Clarification surrounding the taxation of luxury property in France has been welcomed by overseas buyers who are starting to return to the market, it is claimed. The election of Francois Hollande as President in 2012 led to uncertainty over potential tax changes in the second half of the year. Prior to his election Hollande had made several pledges to end tax breaks for the wealthiest residents. As such, his election led to a reduction in demand in France’s prime residential markets as buyers waited for clarification.

At the end of 2012 Hollande gave further detail on his new tax plans and the changes for property taxes are less draconian than had been feared, according to Paul Humphreys and Mark Harvey, of Knight Frank’s French sales team who cover France, Monaco and the Alps. The principal changes announced include a wealth tax and an increase to Capital Gains Tax (CGT).

France’s wealth tax affects everyone who has net assessable wealth in France valued at or above €1.3 million including property. Depending on an individuals’ net worth, rates of between 0.55% and 1.5% apply. CGT has also increased significantly from 19% to 34.5%. This is payable on all gains realised on the disposal of all property except principal private residences.

Quote from PropertyForum.com : “As the ski season in the Alps draws to an end, agents and developers are reporting an increase in inquiries for real estate in prime locations in ski resorts.”

‘Although there are slightly higher taxes in place, buyer interest and sales volumes have started to pick up since policymakers have clarified the details. This echoes what we saw in London where concerns over the introduction of a mansion tax in the second half of 2012 resulted in buyers adopting a wait and see attitude,’ said Humphreys.

The Knight Frank team has found that the increase in buyer interest has been most noticeable in the South of France in areas such as Mougins, Cannes and St Tropez as demand from Scandinavian and British buyers increases. The number of searches for property in Provence, France on Knight Frank’s Global Property Search website increased by 16% in the first five months of 2013 compared to the corresponding period a year earlier, for example. Indeed, searches for property in Provence from Norway increased by 32.5%.

Most recently Hollande has announced that the taper relief system is to be changed so that from 2014 the required time of ownership before a property is completely exempt from capital gains tax will be 22 years, down from 30 years previously. Furthermore, his previously introduced taper rates will now be a more favourable flat 5% per annum. ‘When it comes to international investment France is very much a lifestyle driven market. While uncertainty over property taxes resulted in a number of international buyers choosing to postpone purchases in the second half of 2012, it did not stop transactions. Since President Hollande clarified his tax plans we have noticed that buyers are tentatively returning to the market,’ explained Humphreys.

‘France remains an attractive destination for second home acquisition, with top schools, excellent healthcare and a desirable lifestyle, especially in the South. The recent changes to CGT and taper relief are seen as a clear signal that President Hollande is seeking to encourage the property market and confidence can only respond favourably as a result,’ he added.

Harvey pointed out that when considering the increase in CGT many buyers take the ‘lifecycle’ of their new home into consideration. ‘Many plan to keep their home for a minimum of five to 10 years and therefore take the view that a new government may be in place and the current tax structure will have changed when they come to sell,’ he said.

The team has seen an increase in demand for prime homes in the south of France from abroad but levels are still below those seen in 2011. ‘It is our view that demand for prime property in France will increase as the year progresses. Vendors are becoming more realistic about asking prices. There is also a lot of good stock on the market, which we anticipate will be bought this season,’ added Harvey.

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