France to slap tax on foreign-owned second homes

11th May 2011, Comments 0 comments

France is to hit non-resident owners of 360,000 second homes -- many of them British or Dutch -- with a new tax equal to 20 percent of the properties' rental value, under a draft law unveiled Wednesday.

Property dealers immediately warned the measure, designed to cut France's yawning budget deficit by about 176 million euros per year, would have a chilling effect on the holiday home market in rural regions like the Dordogne.

Some also questioned whether it might breach European Union laws intended to ensure the free movement of capital, despite also applying to French citizens who are resident abroad but keep a second home in France.

The draft, which was approved by President Nicolas Sarkozy's cabinet on Wednesday and is expected to pass parliament in time to become law in 2012, says second home owners should help pay for French public services.

It is part of a package of measures to compensate France's overstretched coffers after an increase in the threshold for a supertax on the rich.

"Being owner of 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 finance ministry said.

France is a popular destination for tourists from Britain and the rest of Northern Europe, and many choose to stay on, buying up relatively cheap homes in rural areas -- without always becoming French income tax payers.

While second-home owners already pay local property tax, if their income is declared abroad they do not pay the same tax as permanent residents.

For the government, this is a loophole to plug, but for the thousands of French estate agents who make a living selling to foreign buyers any new levy can only depress the lower end of the market.

Experts said such a tax could hit British and Dutch retirees and summer visitors who flock to the south and southwest to enjoy the warm climate and fine cuisine, while having little impact on the international super-rich.

Thibault de Saint Vincent, chairman of luxury property agency Barnes, said that Russian, Chinese and Gulf Arab tycoons would still snap up Paris flats, Alpine ski chalets and Cote d'Azur villas.

"An extra 15,000 to 20,000 euros per year won't matter to them," he said.

But property agency Emmanuel Garcin warned: "This new tax could reduce the enthusiasm of foreigners at a time when France is more and more seen as a country of adoption for people the world over."

The law has clearly been written so as not to apply only to foreigners -- as this would breach EU law -- but also to French citizens who have moved abroad and are no longer French residents for tax purposes.

However it makes an exception for those who have paid French tax for at least three years out of the previous ten -- presumably mostly French citizens -- and who would not pay the tax for their first five years in abroad.

Paris property lawyer Daniele Siboni predicted the tax would be challenged under European law as discriminatory, and Marion Chapel-Massot of private wealth managers Equance wondered about royal loopholes.

"I wonder if those who belong to foreign ruling families will continue to benefit from a diplomatic exemption," she mused.

The French parliament is due to vote on the tax reform bill in July.

© 2011 AFP

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