Bonjour French Property Insider Subscriber, This week, an article ran in several local French media with the headline "Une nouvelle taxe sur les résidences secondaires des étrangers en France" (New tax on second homes of foreigners to finance public services). Before you take the headline and imagine all sort of untruths, let's go a little deeper into the facts. The concern is that non-residents of France contribute marginally to national public services. This includes not only foreign nationals according to the rules of this new tax, but also the expatriated French. Yes, this is true, but one must also consider that foreigners only account for 7.7% of the property purchasers (2010) (although authorities believe this will grow).
What they are talking about in this article is the Wealth Tax issue (ISF -- Impôt de Solidarité sur la Fortune). The ISF brought in €4.42 billion in 2007, 19% more than in 2006 and it constitutes 1.5% of France's total tax receipts. As of President Nicolas Sarkozy's tax law of 2007, no tax is assessed on assets valued up to €800,000 and then it is levied as follows:
(A deduction is granted for minors or any disabled persons living in the same household.) Wealth tax applies to global assets for French residents and for others, only to the assets held in France. The only exceptions are for: professional goods such as enterprises (depending on the percentage owned), vintage (more than one century old) and collectable objects, artistic, literature, or industrial rights, woods and participation in forestry plantations (for 75% of their value), anonymous bonds, capital value of pensions and retirement plans and income obtained as compensation for physical injury in accidents or due to illness. If you own a property in France, on which is held a mortgage, the tax would only apply to the principal capital investment and not on the equity held by the lender. This is certainly one major advantage for taking a mortgage, particularly with today's low interest rates. ISF is levied on what remains of the gross value after subtracting deductible debts. The gross value is determined by the declarer following certain rules. For example, the value of the principal home is reduced by 20%, as is done for some rental income. Certain real estate properties in countries with a fiscal convention such as Denmark, Luxembourg, Egypt, Finland, Netherlands, and Czech Republic are excluded. The furniture in the home cannot exceed 5% of the total value of the other goods.
This new tax is what they believe may be one answer. Non-residents already pay the property taxes, but the government is seeking a way to increase their contribution to national public services and to relieve nationals from the solidarity tax. The new tax will be assessed on the rental value of their homes. In certain areas, the percentage of foreign buyers has increased. For example, along the Champs-Elysées, the rate is up 26%; around Notre-Dame the rate climbed to 32%. Again, I almost chuckle -- because it's quite natural for those areas of Paris to be desirable by foreigners, but not by Parisians. These are wonderful spots in the city for tourists, but for full-time residents? No! In Chamonix, Grimaud Saint-Jean-Cap-Ferrat, and other resorts, the properties are coveted by the British and the Russians. This new tax will also apply to the French who have permanently left France, but not the non-residents who left France for reasons of professional expatriate. I wonder how that will be determined? By those who obtain citizenship in their new country? Meanwhile, the professionals don't seem to be worried about scaring away the foreign buyers. There are still plenty of benefits to investment in the Capital City, the world's number one tourist destination.
Adrian Leeds
Editor, French Property Insider With Martine di Matteo Email: fpi@adrianleeds.com |
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If you read the French press, they would have you think that foreign buyers are the primary source of the factors that contribute to the rise in property prices, or the low tax collection, or other ills of the nation...but of course, it always strikes me strange how such a meager amount can have so much power!
A bientôt, 
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