As of January 1st 2013, the French government has introduced a reduction on the capital gains tax rate for second home owners. This concession is a temporary one and will apply only to those homes sold in 2013; so French property holders wishing to take advantage of this initiative will need to act soon.
The new proposal recently announced by the French government to reduce the capital gains tax on the sale of second homes by 20% is good news for anyone intending to sell a holiday home or investment property in 2013. Hollande’s government anticipates that this policy will encourage greater activity in the property market, and the increase in real estate transactions will offset the tax reduction, resulting in a net revenue gain to aid in rebalancing the Republic’s books.
This tax concession will be a temporary measure, applicable only to real estate transactions that take place in the calendar year of 2013. However, any properties sold in 2012, but whose legal process is not completed until 2013 will also be eligible for this tax saving. The policy does not affect one’s primary residence, which remains exempt from capital gains tax.
As a reminder the capital gains tax only applies on the net gain; after eligible costs are deducted, as well as those deductions related to the duration of the period of ownership (see our September release: “Hollande Increases Taxes on French Property” for full details). In summary, the current capital gains tax is 19%, decreasing incrementally after 5 years of ownership. On top of this is added a social security contribution of 15.5%, bringing the total rate to 34.5% The 2013 tax break will pertain only to the capital gains component of the taxes, i.e. not to the social security contributions element.
French property expert, Aideen O’Brien (Managing Director of leading Cote d’Azur real estate agency Chez Riviera) notes "this initiative will no doubt encourage people to put their properties on the market and thereby provide a significant boost to the property sector. Consequently, 2013 should prove an excellent time to not only sell, but also an excellent time to buy due to the greater choice of properties that will become available.”
So for those who have been considering making a move in the French property market, be it on the buy or sell side, this may well prove to be the prompt that many have been waiting for.