Proposed new French property tax not as expensive as some fear

The proposed new property tax for holiday homeowners in France may hit the rich but others may not feel the effect quite so much, according to French property experts.

The new tax has been approved by president Sarkozy’s cabinet and if approved by parliament will take effect from 2012 onwards. The tax will hit all those who own a French holiday home and who don’t rent it out on a long-term basis.

It could thus even hit French expats living abroad who are no longer residents for tax purposes, although not if they’ve paid tax for three of the previous ten years, which will probably account for the majority of people in this position, according to Sextant Properties.

Also the tax will have no effect on investment properties such as French leasebacks and properties that are rented out.

Second home owners in France already pay two local taxes, the taxe d’habitation and taxe fonciere, and this new one will also be calculated on the potential rental value of the property.

‘Owning one or more second homes implies that one benefits directly or indirectly from local and national public services, like the police, legal system and national infrastructure,’ the French finance ministry said.

Many are worried that with the already weak pound, this new tax will have a serious effect on the housing market in France, in particular in more rural areas. The number of expats selling up has already increased considerably and this may be one step too far for them, explained Rachel German of Sextant Properties.

As the tax is calculated based on the rental value, so dependent on the size and location of the house, you will pay more if your property is located along the French Riviera, in Paris or in one of the ski resorts.

‘However many would argue that for those who already own such premium housing or are looking to purchase in these areas, the extra levy will be no more than loose change, even if it equates to tens of thousands of pounds,’ said German.

‘The flip side is that for most second home owners who’ve bought a character property in a rural area of France such as Normandy, the Dordogne, Charente or Limousin, the rental value won’t actually be that much, and thus the amount you’ll be levied won’t be very much either,’ she added.

To calculate the charges you might face, owners need to look at a copy of their last taxe foncière bill. On the last page, under ‘Taxe foncières – Détail du Calcul des Cotisations’, next to the word ‘base’ should be the rental value of the property. ‘You should see that the various taxes levied by your councils produce amounts that relate to that rental value. The new tax will be 20% of that base or notional rental value. So 20% of that figure is what you’d be liable to pay each year,’ said German.

For example, a villa located near Allemagne en Provence in the Alpes de Haute Provence, currently on the market for €577,500, with two acres of land, a pool and five bedrooms has a base of €1,914 which is the estimated rental value for the French tax office. The owner currently pays a taxe fonciere of €1046 a year. This new tax equates to an extra €382.80 a year, or €32 a month.

‘This is not a large sum of money for a fairly desirable area of France, under an hour from Aix en Provence. The bottom line is that this new tax will not set you back much at all, though the newspapers have already done their best to report it in a sensationalist way. We may not agree on the principal of it, but the tax will not set you back drastically,’ she explained.

‘Hope remains that it may not even come to this. The tax will no doubt be challenged as discriminatory under European law, even though the wording tried to avoid this issue by saying that all who own a second home are liable, even French citizens resident abroad,’ she added.