Wealth Tax shake up benefits property owners in France

New tax reforms just introduced by Nicolas Sarkozy shake up the way the controversial Wealth Tax in France is calculated, immediately benefiting many French and British property owners.

The Wealth Tax reforms are part of the Work, Employment and Buying Power (W.E.B.) reforms announced, including changes to Inheritance Tax and new tax relief on mortgages, all designed to boost the economy, encourage investment and increase French buying power.

Crucially, also included in the Wealth Tax legislation are future government intentions to attract high net worth French exiles back to France.

Trevor Leggett, Executive Director, Leggett Immobilier comments, “Wealth Tax in particular has become an issue in France for many property owners. Due to the increase in property values, many people living in modest homes can find themselves subject to this tax. A homeowner living in an area that has been subject to enormous growth may find that their back garden has the potential to become a small housing estate and could be worth in excess of a million euros! This is the case for some inhabitants on the popular Ile de Re, close to La Rochelle. As their property has soared in value, they find themselves liable to Wealth Tax and many have no choice but to sell.”

Now, an immediate measure has been brought in by the French government, raising the allowance on the principal residence by 30% to compensate for property price inflation.

This increased allowance means that a property worth 1,000,000 euros would only be classed as being worth 700,000 euros, thus having a beneficial effect on how Wealth Tax is calculated overall. Therefore, someone with a budget of 750,000 euros wanting to buy a principal residence, who has no other assets, will now be able to spend a bit more and remain under the threshold! This will obviously not affect non-residents and only applies to those living or looking to live permanently in France for the moment.

Trevor Leggett continues, “It also sets out in this new legislation that in September 2008 the government will explain how they plan to attract high net worth French tax exiles back to France for permanent residence. These measures may in turn have the effect of attracting other wealthy individuals to take up residence in France. If these measures are successful there will be a knock-on effect on the high end property market, which at present represents by far the best value in the market. However, this may be a case of ‘don’t hold your breath’, as this will be a difficult exercise and is likely to be protracted involving a possible second term in government. Or indeed a sixth Republic!”

Trevor Leggett ends, “This Wealth Tax reform is good news for many British homeowners in France who may have found themselves in a similar situation to the inhabitants of the Ile de Re. Many British homeowners who bought substantial properties in the mid-1990s may now be feeling the pinch of Wealth Tax. In fact, we have been advising clients for some time to take out a mortgage, even if they don’t need it, on property purchases in excess of 500,000 euros. This is because the asset calculation for the Wealth Tax only factors in the equity in the property.”

Also part of the reforms to the Wealth Tax, the tax authorities will now allow individuals to reduce their overall Wealth Tax liability if they invest in small companies, education or research in the public interest, up to a ceiling of 50,000 euros per year for a maximum of five years. However, there are numerous complex conditions attached to this new measure.

Buyers interested in finding out more about buying in France should visit frenchestateagents.com.