Tax on rental income
The announcement that new French President Francois Hollande had made some proposals to make non-residents pay a social levy on rental income and capital gains had the desired effect. The union workers in France can rub their hands as the dream of taxing the Foreign Rich and the Daily Mail and others get a chance to stoke up a bit of “us and them” light xenophobia to sell some newspapers. The reality is that these proposals really only apply to those who rent out unfurnished property in France- and who owns property like that? Rental income from unfurnished property falls under “Revenu Foncier” in the French tax system and so would attract the extra tax. The boring reality is that the vast majority of buyers in France either do not rent out their property or if they do it is rented furnished which falls under the BIC (Benefice Industriel et Commerciaux) tax regime which is not affected by the new tax.
Capital gains tax
The proposed CGT tax rises of 15.5% are designated as social charges which may be contested in the courts as French law holds that one should not have to pay into two social security systems. The net effect of these extra taxes will be minimal for capital gains for UK investors. This is because the effective rate of approximately 35% is still under the 40% UK tax bracket most buyers of French property are in. For investors from jurisdictions without dual taxation or overall rates of tax below 35%, this will amount to a tax increase but one which will only be due upon sale and who knows when this tax will be repealed if it makes it to the statue books at all. There is also rumour that Hollande will reduce the complete exoneration of CGT in France from 30 years to 22 years as it was in Mitterrand’s time. Currently French capital gains applies to any gains made in the first 5 years and then the taxable base is reduced from year 5 to year 30.