French Tax on Holiday Homes Dropped

Sarkozy changes his mind on new tax for non residents

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Dramatic turnaround on new French holiday home tax

It seems it is not just the British government who are having to rethink some of their recent decisions at the moment, the French are getting in on the act as well. Having just announced that a new tax was to be levied on holiday homes owned by foreigners in France, Sarkozy has been forced to do a dramatic U Turn and scrap the tax before it takes effect.

Give and take - Wealth Tax and Holiday Home Tax

What French president Nicholas Sarkozy had given us with one hand, he was, it appears, planning to take away with the other. His reduction of the dreaded Wealth Tax came as a boon to many expatriate French residents, but new plans were soon afoot to levy an additional charge on second or holiday homes owned by foreigners in France.

French Wealth Tax changes

The Wealth Tax changes were presented to the Council of ministers on May 11th, 2011, and the voting to pass them was supposed to take place in July 2011. Essentially, the changes would have raised the threshold for Wealth Tax from 800,000 Euros to 1.3m Euros, with the banding as follows:
o From 1.3 million to 3 million, the tax payable is 0.25%.
o From 3 million upwards, at 0.5%.

Second home, second Taxe Foncière

The new tax was to have worked like this:
Already burdened by the normal property owner's tax Foncière, and the residents' tax d'Habitation, second home owners from outside France would have faced another tax, something akin to an additional Foncière. If this had been approved, as Sarkozy wished, the rate of 20% (on the cadastral value) was to apply. The law would have become effective in 2012.

Victory for the dissenters

However, Sarkozy and his government came up against a powerful opposition to the plan. During a meeting, held on June 18th (2011), the French president was forced to shelve the plan for the new tax. No less than nine senators, all of whom represented French non residents, voiced their dissatisfaction with the bill, and applied pressure to prevent it coming into force. They also had on their side a question regarding EU Law, which raised the issue of discrimination between residents and non residents, also contrary to the dictates of the French constitution, known for its commitment to equality.

Expat Voter power

A further difficulty faced by Sarkozy in attempting to pass this tax change would be the likelihood that in doing so he would alienate potential voters and weaken his own chances of re-election, something which is increasingly on his mind at the moment. From 2012, French ex pats are to be given the right to vote MPs to parliament, and any bill of this nature could clearly have a detrimental effect on Sarkozy's popularity.

Holiday home owners off the hook

So, at least for now, the idea of instigating the new tax has been dropped, and holiday home owners are off the hook. A combination of powerful opponents, EU Law and Sarkozy's desire to be re-elected have swung events in favour of overseas French property owners, leaving them greatly relieved. However, the situation is still open to speculation, in that Sarkozy still needs to do something to balance his books, having made the aforementioned reduction on the Wealth Tax. How will he try to redress the balance next? The whisper in the willows is that an increase in the capital gains tax on building land may be on the cards, but for now all we can do is wait and see.

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