Today is: 18 May 2012
Please note that tax and international law are complex subjects and you should not rely on this article without professional advice on the facts of your case. Nothing herein constitutes financial advice and if you are in any doubt as to your financial position you should consult an IFA.
The French Government's proposed new tax on second or holiday homes has been abandoned. This tax would have been levied on non-French residents who have holiday homes in France which are freely available to them, i.e. not being rented out. The tax would have been equal to 20% of the valeur locative cadastrale (“VLC”). However, during a meeting held this weekend between President Nicolas Sarkozy, the Minister of Budget, François Baroin and a group of senators representing French nationals living abroad, it was decided that this tax would have been incomprehensible to overseas French nationals.
The French government proposed this tax in order to help finance the reduction in wealth tax. However, it is clear that it had not thought of the implications of this new tax on overseas French nationals and, in particular, how it might affect the way in which these individuals decide to vote at the next election. Talks of whether such a tax would be contrary to the principles of EU laws may also have put the much needed political pressure on the French Government to rethink its strategy.
Although this decision will be welcomed by non-French resident homeowners, the likely cost of this new tax would not have been as significant as many had thought. For many, the tax would not have cost more than a few hundred Euros. Nevertheless, the government had estimated that the total revenues from this tax would have been approximately €176 million a year.
The question now is where will the French government find the necessary funds to finance the reduction in wealth tax? Many believe that they will look to increase capital gains tax on building land. Whether this will this be sufficient or they will need to look elsewhere remains to be seen.
June 2011
David Anderson
Solicitor and Chartered Tax Adviser
Sykes Anderson LLP
9 Devonshire Square
London EC2M 4YF
Telephone 020 3178 3770