Good news for anyone who has a second home in France and is worried they aren’t doing enough to help the French economy – you’re about to start!
As part of the proposed budget changes in France it is planned that capital gains tax will be payable on any gain you make when you come to sell up. (The rules have not yet been signed off so they might change.)
Previously the rule was that after 5 years of ownership the tax liability was reduced by 10% a year, so no capital gains tax at all was payable after 15 years – so that house you bought for 5000 euros in 1975 and is now worth 200 000 euros could be sold without paying any capital gains tax.
But now when you come to sell you will have to pay tax on the full 195 000 euros gain (less an inflation allowance and any bills you have for work on the property). Let’s say 50000 euros to you, sir.
If you live outside France the rate is around 19%, if you live in France and own a second home or gites the rate is around 32 % (because it includes 12% social contributions as well as capital gains tax). Everyone of course still pays the normal fees – typically 7% for estate agents fees and a similar amount for notaire fees based on the whole value of sale).
So total charges could be getting close to 40% – 50% of the sale proceeds if you’ve had the house a long time…if the intention is to kill the property market this sounds like quite a good plan, otherwise less so.
I think that the worst hit will be people who bought an old ruin for a very low price, renovated it themselves (invoices from registered tradesmen are deductible but your own labour isn’t) and now hope to sell it for a decent profit. But any owners of second properties and gites in France will be wanting to keep an eye on developments and checking their own situation.
Note: certain exemptions apply if you sell a property in France having previously been tax resident in France (for at least two years) but are now resident elsewhere. If this exemption still applies after the rule changes it would suggest you need to move back to the UK before selling your property in France. You can always come back later!
I’m guessing that lots of French politicians will have expensive second homes tucked away in their own little corners of France and won’t much fancy the idea of paying a third of the proceeds over as tax, so the law might struggle to get approved, but politics works in mysterious ways…
I’ll add more information here as soon as I become aware of it, and anyone who knows more about the rules please share it in the comments below!
Well this will put an end to the property market. Glad i am not an estate agent, this is probably be the last thing they want, more than likely hoping for some kind of boost or incentive for people to buy/sell. Working out the situation, but i am no proffessional so do take my word for it, but if passed through and for example you purchased a house for 100,000Euros in 1996 and sold under the new regs for say 250,000Euros you would recive a tax bill of approx 45,000Euros. I suppose the good news is you still make 105,0000 but under the current scheme you would have no tax liability as owned for more than 15 years. Notaires and accounts will be busy advising.
Well M Sarkozy doesn’t like targetting ‘normal’ people because everyone goes on strike so it’s easier to target ‘minority groups’ like second home owners or to talk about clamping down on evasion, rather than making real decisions that might actually reduce the country debt levels.
These governments need to stop spending so much and reduce regulation. You know just like Lady Thatcher did.
40-50%?? Wow. Just wow….
So if I move to France and sell my ‘maison secondaire’ in order to part fund a more substantial property to live full time what is the tax aituation then. Advice anyone.
The law hasn’t yet been approved but seems likely to be soon. The amended version of the proposed law says that properties owned for at least 30 years will still be exempt, if that affects your position, and the law will only affect sales before early 2012 (if you could sell up evry quickly).
Moving to France and immediately selling the property would seem to be the worst option since the capital gains tax might then also include 12% social contributions. I suspect you are best either selling it before moving to France, or moving to the house but making sure you have an address in the UK and can claim realistically that you are still a UK resident at the time of sale.
Best option to avoid all CGT would be to move to France and live in the house long enough to be able to claim you are a French resident – then you can claim your house is your primary residence, which is exempt from capital gains tax. I’m not sure if to do this means actually having filled out a French tax return or if you can prove residence more easily.
If the amounts involved are substantial I would (a) wait and see if the law is passed and (b) seek financial advice from a French tax specialist before moving or selling.
So you all have 2nd homes and are still complaining …
I’m a real ex pat married and living here (25 years) and trying to make ends meet: 1 house and lots of work (building home + paid job whatever comes despite Oxford degree)
Don’t add to the bad image of the English abroad who have 2 houses; jobs and income in UK and still aren’t happy!!
Sometimes I just can’t believe it
Bon courage to all and try a little diplomacy whilst living in this great country
Jane, people (like us) who renovate a second building on the same property (for us a barn next to the house) to rent out as a gite are deemed to have a second home. Doesn’t mean we have jobs and income in the uk. Though I don’t have a problem with people who do have UK jobs and second homes either, don’t quite see why having a second home gives anyone a bad image of the English (a lot of French also have second homes in France)
In any case it is the principle that is fundamentally flawed – tax should not be charged now on profits that were made 10 or 20 years ago, a tax should be charged with effect on gains made only after the rule is introduced. If you don’t accept (and fight for) this idea then you accept that, for example, any increase in the value of your pension fund, or main house, over the last 25 years could suddenly be charged tax, at any rate the government chooses. That is, they can help themselves to as much of your accumulated wealth as they like.
Which is fundamentally wrong.
sure it is always a good reaction to wait and see
almost a pure lesson of English composure…
the law is not passed yet, however the speech of the likely next president of France is definitely not reassuring for the ones having une residence secondaire!…
http://www.dailymotion.com/video/x58md_je-naime-pas-les-riches-fhollande_news
http://www.youtube.com/watch?v=BOsXrN0XSLY&feature=results_video&playnext=1&list=PLBE3720B68025463C
So I imagine this current ridiculous tax rate of 32+7+7% will climb to 70 or 80% at least next May…!
Jane, do not worry, i am sure that when you are about 40 and have managed to make a success of things you will not be too happy if your choice of investment, (paid for with your hard earned taxed paid money) is suddenly taxed again. Many second homes here are part of peoples pensions and long term investments, most are owned by French who have inherited the property and many by people using them to assist their income. Not all second homes in France are the rich peoples holiday homes. The big surprise to most is that they thought there was no tax to pay before the new regime, which is strange as there is a tax bill on nearly all house sales in France, there is also a liability to declare any profits to the UK taxman who may want his share.