Owners of French property set to pay more tax

Tuesday, 11 October 2011 8:45 AM

Holiday home owners in France could face a higher capital gains tax bill under changes that take effect in February.

Estate agent Knight Frank says any Brit who has owned a home across the Channel for between 15 and 30 years could be hit particularly hard.

Under the current tax regime property owners pay 100 per cent capital gains tax in the first five years of a property's existence but get a 10 per cent discount per year after that, enabling them to sell tax-free after 15 years. The tax rate is 31.3 per cent for French residents and 19 per cent for EU residents.

The tax will still be payable in full for the first five years under the new plan. However, from 1 February the reduction will be 2 per cent per year for six to 15 years of ownership (up to 20 per cent), 4 per cent per year for 16 to 24 years (up to 52 per cent) and 8 per cent a year for 24 to 30 years (up to 100 per cent).

Fred Schiff of the international team at Knight Frank said: "For second home owners in France, especially for those who have owned for between 15 and 30 years, this proposal may come as an unwelcome change. They could now be faced with an additional and unexpected tax burden upon the sale of their property. Consequently many have become more motivated to sell which has been reflected in a significant number of price reductions."

The firm quotes an example of someone from the UK who bought a property for €500,000 in 1996 and sold it 15 years later for €1 million. Under the current regime they would pay no capital gains tax in France but under the new one they would face a bill for €76,000.

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• property in france