Property investors with a second home in France will have been devastated by the news that the Nikola Sarkozy’s French Government has announced draconian tax laws on foreign owners of vacation properties in France.
Tax will win approval in France
The new tax comes as a result of Sarkozy’s under pressure Government looking for an easy target to raise revenues when, in common with most countries in Europe, the indigenous population has fallen on hard times. After a marathon all night session, the French Parliament finally agreed that the maximum tax threshold on resident French workers would be 50%, a noticeable cut for the new breed of entrepreneurs. The decision to tax instead foreign home owners is seen as a political stroke of genius for the French President.
Tax will differ from region to region
The tax will mainly affect people who own a holiday home in France but only use it as a holiday retreat for a few weeks of the year. Although holiday homes are already taxed for both the owner and the incumbent, the new levy will give local authorities (French Taxes are raised by region) the power to estimate the rental value of a property if it was to be rented out all year long, and then tax the owner 20% of that total. It will prove to be the death knell for holiday home ownership in France for many UK residents.
There may be a way out but don’t hold your breath
The new tax on top of current expenses such as utility bills, property insurance and the cost of getting out to the property will probably render the property unviable and owners may look to sell up before the taxes have chance to hit home. There is, however, two possible ways of avoiding having to pay the new levy. Firstly the tax can be avoided if the owners place the property on the market with a local letting agent throughout the year and secondly experts in European law are questioning the legality of discriminating against foreign owners in a country that is part of the European Union.
With an election just 12 months away Sarkozy will be prepared to take the chance of an obscure court battle over taxes if it means he gains popularity with the voters in France.