French to tax foreign second-home owners

image captionPresident Hollande's tax increases will affect UK citizens with homes and wealth in France

UK citizens who own homes in France may have to pay substantially more in tax in that country, under proposals announced on Wednesday.

Capital gains tax, and income tax on rental income, will rise substantially for foreigners, to levels paid by French citizens.

Several hundred thousand UK citizens own, and let, homes in France.

French President Francois Hollande intends to raise taxes on businesses and the richest households.

He is targeting them for extra taxation worth 7.2bn euros (£5.8bn; $9bn).

He also unveiled plans for a 2.3bn-euro one-off levy on households earning 1.3m euros a year or more.

At the moment, French capital gains tax is levied on the sale of a home at 19%, plus 15.5% as a "social charge" to pay for state benefits.

Likewise, tax on rental income is levied at 20% plus 15.5% social charge.

The social charges are not currently paid by foreigners who own homes in France, but under President Hollande's plans, they will be.

"I am surprised that they are applying social charges to non-residents - you cannot be taxed for something you do not receive," said Patrick Delas, a French lawyer at London law firm Russell-Cooke.

The extra taxes have been outlined in a supplementary budget which should become law by the end of July, and which will apply immediately.

It is possible the extra taxes to be paid by foreigners may be challenged legally.

"There is a constitutional court in France which may strike this down," said Mr Delas.

UK citizens who have property in France may also be affected by the restoration to their 2010 levels of the previous bands for annual wealth tax.

These will affect anyone who has wealth in the country, such as property and cars, which are worth more than 1.3m euros.

At the moment, the wealth tax is applied at 0.25% on taxable assets worth between 1.3m and 3m euros, and then at 0.5% on wealth above that level.

It will now be applied at six different rates ranging from 0.55% to 1.8%, starting at a trigger point of 1.3m euros.

James Johnston, at law firm Bircham Dyson Bell, said: "An even more significant impact would be for those, such as retirees, who look to reside in France for more than 50% of the year."

"For them, any increase in wealth tax would apply not just to property, but to all of their worldwide wealth and therefore significantly alter their levels of spendable income.

"It is therefore likely that we could see fewer British retirees settling in France if overall tax rates go up unduly," he added.

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