A new tax on second homeowners in France may be declared unconstitutional by the EU
London, UK (Pryce Warner International) July 6th, 2012 – Jean Arthuis, a former finance minister of France commented that the new tax on Expats may be deemed unfair by the European Union as it forces them to make a “social contribution” without offering them the full benefits such a contribution should entitle them to.
The proposed measure would increase tax on foreign owned second homes; rental income tax would rise to 35.5% from 20%, and capital gains on property sales would increase to 34.5% from 19%.
In addition to this, the tax on rental income will be retrospective from January 1st this year. The increase in capital gains in expected to come into force by the end of July latest.
This new tax comes despite a pledge by newly elected president Francois Hollande not to increase taxes for non-residents.
Several property experts in France now fear that this new tax on top of the Eurozone crisis may have the effect of driving British homeowners out of France.
The new tax measure has been designed as a means of trying to reduce France’s escalating budget deficit by claiming more income from the 200 000 British Expat home owners in the country.
The French finance ministry commented that the tax would “remove an unjustified tax advantage” as part of an overall tax increase policy. They also provided an example that showed how a non-resident who sells their €4m house could pay up to €620 000 in “social charges”.
David Retikin, Director of Operations at Pryce Warner International Group, a financial services provider for Expats, commented: “This new scheme is purely politically motivated, it will not have any real impact on reducing the French budget deficit, which is a home grown problem, with France not having had a balanced budget for over 40 years. British immigrants to France have contributed in an incredibly positive fashion to the economies of the regions in which they have chosen to relocate. This is equally true of those who own holiday homes in France.”
Gaelle Perreaux, Property Services Manager at French property specialists FrenchEntrée, commented: “Assuming it comes into force (remembering that Sarkozy abandoned plans for similar measures last year) this latest budget amendment would be an unwelcome surprise for non-resident property owners who rent their properties or who plan to sell at some point in the future. But it's important to underline that it would not impact existing residents or those planning to buy a property and move to live in France, provided that when they sell they are still resident in France for tax purposes. As things stand there also remain various ways for non-residents to reduce capital gains tax liability when they sell a house in France - so far we are not aware of any changes to these rules which can help you reduce your tax bill when the time comes to sell.”
By Aneil Fatania
Pryce Warner International Group
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