Posted by Nick Day on 10 Jul 2012

French to Tax Second Holiday Home Owners

UK citizens who own homes in France will have to pay more tax under proposals announced this week by French President Francois Hollande.

Approximately 200,000 Britons own second homes in many parts of France, particularly those serviced by budget airlines.  Many UK citizens let out their holiday homes in France.

Capital gains tax and income tax on rental income will rise considerably for foreigners, to match levels paid by French citizens.  Tax on rental income would rise from 20% to 35.5%, and capital gains tax on property sales would rise from 19% to 34.5%.  The extra taxes are being labelled as ‘social charges’ which are not paid by foreign home owners at present.

The extra taxes have been outlined in a supplementary Budget which should become law and apply from the end of July.

Holiday home owners and tenants already pay two other taxes to the French government – the ‘taxe fonciere’ which is paid by the house owner and the ‘taxe d’habitation’ which is paid by those who live in it.

UK citizens who have property in France could also be affected if they have wealth in the country.  An additional €2.3 billion (£1.8 billion) will be raised from a levy on those whose net wealth is over €1.3 million (£1 million).

The wealth tax is currently applied at 0.25% on taxable assets worth between 1.3m and 3m euros, and then at 0.5% on wealth above that level.  It will now be applied at six different rates ranging from 0.55% to 1.8%

The tax increases are part of a wider package of rises that are intended to raise €7.2 billion (£5.8 billion) to meet a budget shortfall target of 4.5%.

If you are a UK tax resident and receiving French property income you should be declaring the income in your UK Tax Returns and claiming credit for French taxes paid.  If you spend time in France and the UK you may need to determine your UK and French tax residence positions, and “treaty tax residence” position under the UK/French Double Taxation Treaty in order to decide where you pay your tax liabilities.  Special rules may apply if you are not domiciled in the UK.

If you would like any advice regarding the above article or would simply like to discuss other ways in which we could help you or your business, please contact us on 01962 856 990 or customerservice@taxinnovations.com.