The new tax on French holiday homes explained

A new holiday tax has been approved by president Sarkozy’s cabinet and will be put before parliament to take effect from 2012 onwards. The tax will hit all those who own a French holiday home and who don’t rent it out on a long-term basis- it could thus even hit French expats living abroad who are no longer residents for tax purposes, although not if they’ve paid tax for three of the previous ten years, which will probably account for the majority.

20th June update:

It has just been announced that the proposed holiday tax has been scrapped.

President Nicolas Sarkozy and Budget Minister Francois Baroin were put under pressure from senators representing French expatriates during a weekend meeting and agreed to omit the measure from a tax reform package set to pass to the Senate upper house on Tuesday, the daily Les Echos said.

Source: Reuters

This does mean though that the tax will have no effect on investment properties such as French leasebacks and properties that are rented out (buy to lets).

Second home owners in France already pay two local taxes- taxe d’habitation and taxe fonciere– and this one will also be calculated based on the rental value of the property.

“Owning one or more second homes implies that one benefits directly or indirectly from local and national public services, like the police, legal system and national infrastructure,” the finance ministry said.

Many are worried that with the already weak pound, this new tax will have a serious effect on the housing market in France, in particular in more rural areas. The number of expats selling up has already increased considerably (doubled in fact in the past year) and this may be one step too far for them.

As the tax is calculated based on the rental value (so dependent on the size and location of the house) you will pay more if your property is located along the French Riviera, in Paris or in one of the ski resorts. However many would argue that for those who already own such premium housing or are looking to purchase in these areas, the extra levy will be no more than loose change, even if it equates to tens of thousands of pounds.
The flip side is that for most second home owners who’ve bought a character property in a rural area of France (be it Normandy, the Dordogne, Charente or Limousin) the rental value won’t actually be that much, and thus the amount you’ll be levied won’t be very much either.

To calculate the charges you might face, look at a copy of your last taxe foncière bill. On the last page, under ‘Taxe foncières – Détail du Calcul des Cotisations’, next to the word ‘base’ should be the rental value of your property. You should see that the various taxes levied by your councils produce amounts that relate to that rental value. The new tax will be 20 percent of that ‘base’ or notional rental value. So 20 percent of that figure is what you’d be liable to pay each year.

We can illustrate this point with a villa located near Allemagne en Provence (in the Alpes de Haute Provence), currently on the market for €577,500, with 2 acres of land, a pool and 5 bedrooms. The “base” is 1914€ which is the estimated rental value for the French tax office. The owner currently pays a taxe fonciere of €1046/a year. This new tax equates to an extra €382.80 a year, or €32 a month, which is not a large sum of money, and this is a fairly desirable area of France, under an hour from Aix en Provence.

The bottom line is- this new tax will not set you back much at all, though the newspapers have already done their best to report it in a sensationalist way. We may not agree on the principal of it, but the tax will not set you back drastically.

Hope remains that it may not even come to this- the tax will no doubt be challenged as discriminatory under European law, even though the wording tried to avoid this issue by saying that all who own a second home are liable, even French citizens resident abroad…