Homeowners in France in legal fight over tax plans

PRESIDENT FRANÇOIS HOLLANDE could face a legal battle over his plans to introduce a significant tax hikes for foreigners who own homes in France.

The socialist government plans to increase taxes on second homes by taking a portion of rental income and raising capital gains tax on sales. The charges will apply to non-domiciles owning property in France and ex-pats living elsewhere.

The current proposals would see tax on rental income go from 20% to 35.5%, while capital gains would rise to 34.5% from 19%, with the additional 15.5% being branded a “social charge” in each case.

Foreigners with property in France already pay two extra taxes: the taxe foncière, which is paid by the owner, and taxe d’habitation, paid by the occupants.

Alex Henderson, tax partner at PwC, warned that the legality of the proposals is questionable.

“Tax on foreign-owned second homes focuses on the wealthy and avoids hitting your own electorate. However, the plans could breach EU laws if they discriminate against other EU nationals,” he said.

An existing treaty between the countries allows UK residents to offset tax paid in France against tax paid in the UK on the same income. The French tax hike on rental income will only be on revenue derived from unfurnished lets.

However, because UK capital gains tax is lower – at 28% – than the proposed French rate, property owners may not be able to claim full relief for their French tax.

Brits who may be affected by the proposals have little time to act. Should they go ahead, the rise in tax on rental income will be backdated to 1 January this year, while the increase in capital gains tax would apply from the end of this month.

Related reading