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Will Brits be hit by French tax hike on holiday homes?

6th July 2012 Print

Andy Scott, premier account manager at foreign currency brokers HiFX, comments on the French tax hike on holiday homes.

"Hollande's latest bid to hike taxes on foreign-owned second homes is likely to make property ownership in France more costly, but we are not expecting this announcement to have a huge impact on our clients though it's early days yet. This latest tax hike is different from 2011, when they changed the relief on capital gains tax for properties owned for 5 years or more. This caused an increase of 50% in clients trying to sell their second homes in France before the change date if they'd owned them for more than 5 years."

Why might this tax not have a significant impact on HiFX clients?

"Firstly, around 70% of our clients who buy property in France do so with the intention of retiring there at some stage and so don't usually plan to sell it after just a few years. Assuming the same rules apply where capital gains is only payable on the difference between the purchase price adjusted for inflation and the sale price; the rise would at least be partly offset. Secondly, property prices in many areas of France still represent very good value when compared to the U.K. For example, £200,000 would buy you a 3 bedroom terraced house with a small garden in Devon. For the same money you could buy a 5 bedroom house with 1.25 acres. Finally, only around 10% of clients who buy a second home in France tell us they plan to rent them out apart from to friends and family so the increase in rental income tax will not affect the majority of our customers.

"That said, we continue to see a steady flow of new and existing clients who are selling property there, be it their main residence or a second home. With the exchange rate having dropped to 0.80p for the first time in over three years and continued fears that the Euro may not survive, we anticipate that trend to continue. France still remains a very popular destination for Brits buying abroad but given Francois Hollande's governments aggressive tax stance towards wealthy individuals, I'm sure many people will be thinking twice about buying property and/or relocating there as this latest hike could be the first of many!"