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Friday, July 6, 2012

Tax the Foreigners

I've been watching this very interesting debate unfold in the UK and French media.

A few days ago the new French President, Francois Hollande, announced a new tax on foreign-owned second homes something that has a direct impact on those who want to do the Peter Mayle thing part-time.  This article in the Telegraph gives the particulars:
On Wednesday (July 4th), the French government announced it was to increase taxes on foreign-owned second homes. Tax on rental income would rise from 20 per cent to 35.5 per cent, and capital gains tax on property sales would rise from 19 per cent to 34.5 per cent. The extra in each case is being labelled a "social charge".
These taxes are in addition to the basic property taxes that everyone pays (residents and non-residents): the taxe fonciere (paid by the property owner) and the taxe d'habitation (paid by whoever occupies the property - renters or owners).

The Brits are not amused.  The British government is likely to challenge it and the stories in the UK press have an interesting flavor exemplified by the title of the Telegraph piece, "Francois Hollande announces French tax grab on holiday homes."  Tax grab?  Interesting choice of words....

The French press (from what I have read) seems to be saying, "So, what's the problem?"  This article from Le Figaro, Les Anglais en France peu inquiets d'une possible taxe (the English in France not really worried about a possible tax) shoots back by quoting British residents here who seem to be quite sanguine about the whole business and consider this a small price to pay to realize their French dream.

Who's right and who's wrong here?  No clue.  In the race for revenue, this is low-hanging fruit - it only impacts foreigners here who are not residents and cannot vote and it's likely to be very popular with the French public.  I was struck by this comment in the Telegraph article, "The plummeting pound meant that the English had almost disappeared from the Dordogne house market. With this, it's as if they want to totally kill off the foreign home owner market in France."  Well, not necessarily but it's clear from the various remarks I've heard over the years from friends and family here (French) that they are not entirely comfortable with the British invasion of small towns and villages in rural areas of the Hexagone.

As an American here I plan to stay out of it and watch the whole business unfold from the sidelines.  

Should be interesting to watch - European tribal politics at their finest. :-)


Christophe said...

Hi Victoria,

The term foreign owned second home is a little confusing. Does that mean homes in France owned by someone not living in France, i.e brits or French expats, or people living in France who might have a vacation home outside of France? or both? Yes, a lot of British people have been buying property in France. Not sure why the French consider it bad, if they integrate well with the population. Either way, they might have averted a housing crisis.

Interesting article. Thanks for posting.

Hope you're continuing to get better.



Anonymous said...

For those French buying up the surplus condo markets in Miami, this would have to be a BIG downer. Sales in Miami fall, due to French taxation policy. World wide impacts. Hopefully, the Latim American countries don't get the same idea, as those now full condos in Miami, might go empty again, especially if DATCA requires the U.S. Banks to report their account interest to the IRS and back to their tax offices. Globalization is taking on new meanings.

Anonymous said...

oops, I think I got the understanding of that backwards. This means the Brits that own and rent have to pay more tax, is that right?

Victoria FERAUGE said...

Hi Christophe and Anonymous,

Yes, it means property in France owned by someone who is not resident in France. For the most part this means foreigners like the Brits or the Dutch who own vacation homes here but it appears that this will also apply to French citizens under certain circumstances as well. This article says

"The law has clearly been written so as not to apply only to foreigners - as this would breach EU law - but also to French citizens who have moved abroad and are no longer French residents for tax purposes.

However, it makes an exception for those who have paid French tax for at least three years out of the previous ten - presumably mostly French citizens - and who would not pay the tax for their first five years abroad."

So the impact would primarily be on foreigners who own property here but who are not legal residents.

and this one

the fly in the web said...

The retrospective nature of the changes to tax on rental income doesn't make for a stable atmosphere, following as it does the changes to capital gains tax on any but a principal residence.

I've French friends who had bought property with a view to renting it for then (then) fifteen year term and then selling at a point when the cash injection from the tax free sale would be estimated to provide a boost in their retirement.
The change to thirty years and the new tax regime have been a severe blow.

Victoria FERAUGE said...

@Fly, Good point. Makes me very happy that we dumped all our rental property in 2010/2011...