A contentious tax hike affecting foreign owners of second homes has been given the green light by France’s highest constitutional authority. The new charges were approved despite many property experts warning they are against European Union law.
Owning a charming holiday home in the heart of rural France may no longer be the life-long dream of Francophiles across the world, thanks to new substantial tax rises.
A massive tax rise affecting foreigners who own second homes in the country has been given its blessing by France’s highest authority, the Constitutional Council.
The legislation was approved on August 9, despite strong claims by many in the property market that it is against EU laws.
It comes even after President François Hollande appeared to reassure Britain’s legion of holiday home owners during a recent trip to the UK.
The law imposes an extra “social charge” of 15.5% on the existing capital gains tax related to the sale of second homes, meaning the original levy will rise from 19% to 34.5%.
The same 15.5% “social charge” will be added to the tax of rental income, raising the rate owners have to pay from 20% to 35.5%.
‘Sense of anger’
“My inbox has been inundated with messages from worried clients. There’s a sense of anger about this,” David Yeates, editor of website French-Property.com told FRANCE 24. “Many feel it will discourage investment in France and it’s contrary to existing laws.”
Around 200,000 Britons are likely to be affected whilst the French government predicts the tax could raise around €50 million.
The levies will affect all non-residents, known as ‘non doms’, who own a home in France, including French nationals who live abroad.
Many tax and property experts, including Yeates, believed the legislation would be thrown out by the council because it is against EU law, on the grounds of discrimination.
In France, “social charges” are considered separate to taxes and provide contributors with access to health care and unemployment benefit.
The fact that non-resident second-home owners will now be forced to pay the same “social charges” on rental income and capital gains as residents of France but not receive the benefits is seen as another legal flaw.
“I am baffled by the Constitutional Council’s decision,” Yeates said. “It’s extraordinary they allowed this, to go through in the face of all the legal evidence."
“I don’t think we’ve heard the end of this, simply because there’s some very powerful people who strongly dispute this,” he added.
But despite the furore, the Constitutional Council decided this legislation should not be judged against EU law but French law alone.
Too expensive to fight through the courts
It is now down to President François Hollande to rubber stamp the law with his signature when he returns home from holiday later this month.
The law is part of Hollande’s plan to raise €7.2 billion in tax revenues to boost the country’s coffers by targeting the country's wealthiest.
Anyone who refuses to pay the new charges will have to challenge it through the minefield that is the French and European justice systems.
But French born solicitor and tax specialist Patrick Delas believes most second home owners will not risk going down that route.
“It will become so expensive to go through the courts that it would not be worth challenging it,” Delas told FRANCE 24.
Delas, who works for London based firm Russell-Cooke, also believes the levy will not be as effective as Hollande hopes.
“Every time there is a new tax or a rise in taxes, it brings in less than expected for the government,” he said.
Britons will still want a summer
But despite the controversy surrounding the bill, some experts believe it will have little impact on those considering buying their dream home in France.
The charge on rental income is only applicable on unfurnished properties and many believe homes will simply be rented out “off the books”.
Moreover, the capital gains tax will have minimal impact because those who buy a second home in France do so for a long-term investment. The tax is not applicable if the owner remains in possession of the property for 30 years or more.
“I think once people become aware of the measures and they know where they stand, they will say ‘Ok. Fair enough’,” Patrick Joseph, editor of the website My-French-House.com told FRANCE 24.
“At the end of the day, France is France and British people will always be attracted by chance of a proper summer with some sunshine and some good food.”
Date created : 2012-08-13