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French Property Taxes - A Further Update
In our previous briefings, we had highlighted various changes to the French tax regime which are of particular relevance to UK resident individuals owning holiday homes there.
In the past week, the French Parliament has also approved changes to the capital gains tax regime. Whereas the headline rate for overseas owners of French property remains unchanged at 19% (except for those broadly resident in tax haven territories) the availability of so-called taper relief has been reduced. Previously , the chargeable gain was reduced by 10% after 5 years of ownership and each year thereafter until after 15 years, the chargeable gain was completely eliminated.
Subject to approval from the French Senate, it is proposed that the amount of abatement will be reduced to 2% per year after 5 years of ownership until year 15, then a 4% rate will apply for years 16 to 25 and finally an 8% abatement in years 26 to 30. Thus, it will now require a lengthy 30 year period of ownership of a second home in France for the capital gain to be completely eliminated. These new rules are expected to take effect from 1 February 2012.
However, before thoughts of panic selling set in, it should be remembered that in most circumstances, the gain will also be liable to UK tax at 28% with a credit available for the French tax payable. Thus the overall burden to a UK taxpayer should remain unchanged, albeit with a greater proportion of any tax now payable on the other side of the Channel. However, if the property has ever been used as your main home, or as a non-UK domiciled individual, you are entitled to the remittance basis of tax, these changes could result in additional liabilities. Advice should therefore be sought in respect of these matters.
