Sunday, 8 July 2012

Sunday, 8 July 2012

Hollande Government gaffes ?


During the last few days there have been several administrative changes that have been announced that will have a significant impact upon ex-Pats here in France. 

First of all, there are those in receipt of a pension income – who previously have escaped the Contribution Sociale Généralisée (CSG) on their pension income as they were not known to URSSAF, with whom there was no obligation to register. The charge is at the rate of 6.6%, unless of course, you are eligible for the reduced or nil rate – for which you may need to seek professional advice. So that is the first bit of bad news for readers. Secondly, the Hollande administration has announced that tax charged on rental income would rise from 20% to a level of 34.5%, with this rise in tax being retrospective, from January  1st  this year. This is a bitter pill to swallow for people in the tourist hospitality business such as gîtes and chambre d’hôtes where rates will have been set back in 2011, based upon anticipated booking levels and taxation. There is also a requirement to pay social charges on this income.
In addition, the new Government are planning to revise the French Capital Gains Tax (CGT) rules.  These were only amended during the 2nd half of 2011, and here the news is mixed. The good news is that Hollande is planning to reduce the recently introduced 30 year rule to 22 years for a property to be free of CGT.  (Previously the deferred period was 15 years).  The bad news is that for non-residents, is that he is also trying to introduce an additional charge to the current CGT rate of 19%, by way of an additional social charge of 15.5%, bring the full rate up to 34.5%.

This would be in line with the rate paid by French residents, but via what I understand to be an illegal route, so it could well get thrown out or challenged in EU courts.  I believe that France does not have the authority to charge non-residents such a social charge, and therefore this demand is illegal.

Many ex-Pats are already being hit hard by France’s changing CGT rules. Back in 2000 when many people started their French adventure,  an allowance was made for materials purchased for home improvements, meaning that many buyers went down the DIY route to enhance their French properties. Overnight, in a previous change to CGT rules, this allowance was abolished, and only “qualifying recepits” from registered artisans can now be used. The result is that many people now appear to be sitting on a significant Capital Gain, when in reality they may have actually lost money.

The plans proposed were an attempt to bring parity to the table, as non-residents have previously not paid as much in France as residents on their French rental income or indeed on gains from sales of their French property. It will inevitably add to the cost of owning your holiday home if you either let it out, or sell it.
However, rather like Sarkozy’s flawed attempt in 2011, to raise an extra tax on houses owned by ex-Pats, I feel sure some of this planned legislation will fail as a result of it not being very well drafted.

Making the rental income increase retrospective will inevitably attract strong criticism. It will increase the likelihood of people under-declaring rental income, increasing the black economy.  Inevitably the legality of trying to levy a social charge against non-residents will result in the draft being changed or a legal challenge following. None of these measures do anything to stimulate either the tourist or housing markets, which will be fundamental to France’s recovery from the Global Recession. Furthermore, the proposals will only serve to dampened down an already depressed housing market in 2012 and for the forseeable future.

Below, I am sharing an example of a client whose property price had fallen from 250,000 Euros to 200,000, and received an offer of 190,000. They initially refused the offer because of the “loss” of 60,000 Euros. At the time of their purchase, the exchange rate was 1.6994, meaning that the Sterling cost had been £147,110. Because in the interim period the Euro has strengthened against the £ they would return back to the UK with £151,050 – a small but acceptable gain. It enabled them to move on, and removed the uncertainty from their lives of a property still for sale and a potential currency risk.

As I write this column, the £ has reached a 4 year high against the Euro and breached 1.26, so hopefully that is some good news for UK buyers looking for property in France.

Peter Elias (Agent Commercial)
05 55 28 46 40
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