24th September 2013
The French government has reformed the rules on capital gains tax on French properties with experts saying this has boosted the long term case for investing for prospective British buyers. Homeowners are not now subject to CGT if they own the property for more than 22 years an eight year reduction from the previous 30.
As of 1st September 2013 the ownership period which applies to French CGT has been reduced from 30 years to 22 years for any capital gains made since 17th August 2012. A new taper relief has also been put into effect with a 6% annual reduction between years 6 and 21 and 4% in year 22.
The French government is also offering a supplementary CGT discount to further boost this – 25% CGT reduction for properties sold between 1st September 2013 and 31st August 2014. The discount applies to both capital gains tax and the additional social charges in bid to boost the French property market.
Property investment firm Athena Advisors says the details mark the end of a year of uncertainty which had reduced the number of properties.
The firm has compiled the following table of the French taper relief system which aims to encourage buyers to hold the property for a long period of time.
Previous taper relief system on the 19% CGT over 30 years:
Under 5 years of ownership: No reduction
5th to 17th year of ownership: 2% annual reduction
18th to 24th year of ownership: 4% annual reduction
25th to 30th year of ownership: 8% annual reduction
After 30 years of ownership: The sale of the property will be exempt from CGT
New system on the 19% CGT over 22 years:
Under 6 years of ownership:
6th to 21st year of ownership: 6% annual reduction
22nd year of ownership: 4% annual reduction
After 22 years of ownership: The sale of the property will be exempt from CGT
Nicholas Leach at Athena Advisors says: “For the past 12 months non-resident buyers have adopted a lay-low strategy, waiting to see what would happen with Francois Hollande’s initial changes to taxation on wealth and property during 2012.
“This strategy has helped their own cause as a reduction in property transactions has meant prices have softened slightly, which means there are some great opportunities. Now that the government has clarified their position on taxes like capital gains buyers are returning in order to exploit the current mortgage rates while they still can. Buyers are in a much better position than there were 12 months ago.”
“However not all wealthy buyers chose to ride out the uncertainties over taxes. For example, the cutting off point for Wealth Tax is at €1.3m in net assets including property, so some of our client simply chose to finance part of their property to come in under this value, thereby exploiting the current low mortgage rates and locking in some real long term value.”
Athena Advisors says the French mortgage market is in good shape at the moment with French banks reporting 50% more completions scheduled for the second half of the year than the first 6 months. Yet with a return to positivity comes the potential for interest rate increases.
“We have already seen increases to the 10 year government bond rates in France and rates increasing with some domestic French lenders,” says John Busby of French Private Finance and Athena Advisors’ sister firm.
“However, the main banks for non-resident buyers have kept their rates the same with 20 year mortgages available for 80% of the purchase price at 3.25% fixed for the term or approximately 2% variable (a 1.80% margin again for the term). If buyers keep coming rates could definitely go up, but for now buying conditions are still excellent for people looking for finance in France with rates remaining at historic lows.”