For the majority of current and aspiring foreign home owners in France, the proposed taxation changes will not have much of an effect, reports Athena Advisors.
The social charge contributions now imposed on the rental income generated by properties which are owned by non-residents only applies to unfurnished rental properties, which fall into the Revenu Foncier system. Historically the Revenu Foncier taxation system is more relevant to French nationals, not overseas investors.
Camille Letuve, Partner at Athena Advisors comments:
"Yet again, it is frustrating to see the facts so poorly misconstrued. The new proposed tax on French rental property is only applicable to non-furnished rental properties and very few British and international investors own one of these."
Today, non-resident owners of French property can still opt for the more tax-effective furnished letting tax system called BIC (Benefice Industriel et Commerciaux). This tax system allows you to amortise your property and offset the charges related to a property's rental income.
"The BIC system can considerably reduce an investor's liability and in some cases nullify it completely," added Letuve. "So despite what has been reported over the last 24 hours, from an investor's point of view very little has changed. French property still represents a secure and financially viable investment."
Implications for leaseback properties...
"As for leaseback properties, they have been around for over 40 years and have been structured in a way that makes this type of new proposed tax increase inconsequential," added Letuve. "In some ways, it actually makes investing in a leaseback property more attractive, especially if you utilise the current mortgage rates - our investors are currently buying ski apartments with a 3.85% fixed rate mortgage for 20 years. How's that for fiscal value?"
Implications for Capital Gains Tax...
The French government has also announced that that capital gains tax on foreign-owned second homes is also set to increase from 19% to 34.5%. Yet for the majority of UK and international buyers, this news does also not need to come as a shock,
"The capital gains tax has increased, but this tax reduces over time, just as it always has," said Letuve. "More importantly, very few people invest in French property to then sell it on a few years later. Instead they have at least a 10 year game plan and if they keep their property long enough there will be no capital gains tax at all."
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