Tax on Holiday Homes Scrapped

Tax on Holiday Homes Scrapped
Monday 20 June 2011
The proposed tax on holiday homes in France has been scrapped by the French government.
The
decision to abandon the idea was taken over the weekend at a meeting
between President Nicolas Sarkozy and the Minister of Budget, François
Baroin.
The meeting was also attended by a group of senators
representing French nationals living abroad, who would also be caught by
the new tax.
The particularly difficult constituency for the
government with this tax is likely to have been the tens of thousands
of French working abroad, who retain a home in France.
According to a statement from the Elysee Palace, ‘y avait une très forte incompréhension des Français établis à l'étranger.’
So
the reason for abandoning the tax may well be political, for the
government had clearly not thought through the implications of this
proposal on an important body of supporters living abroad, and the
nuances of why some of them were exiled.
It was certainly a
last minute idea, thrown in mix of the finance bill during its passage
through parliament in order to help make the sums stack up on the
reduction in the wealth tax.
President Sarkozy may also have been
influenced by the loss of stamp duty from a potentially lower level of
house sales to non-residents, and the possible wider impact on revenues
from tourism.
Whether legal considerations came into the
discussion remains unclear, but there are a number of expert
commentators who considered that the new tax infringed EU regulations,
and was also contrary to taxation treaties France has in place with
other countries.
There also appears to have been political
pressure from the UK, for David Lidington, the Minister of Europe, also
protested to senior French politicians about the new tax.
According
to the French government, 363,000 owners would have been liable for the
tax, of which around half would have been UK citizens.
Although
the proposal caused a huge amount of consternation amongst those with
second homes in France, this was largely because of a misunderstanding
about just how much it would cost.
In fact the impact was likely
to have been relatively mild. For the vast majority of those affected by
it, the tax was never going to cost more than a few hundred euros a
year.
The government estimated total revenues from the tax of €176
million a year, equating to a broad average charge of around €500 a
year, although it would vary by type, size and location of property.
Around 350,000 non-resident second home owners who rent out their property would also have escaped the tax.
As
the new tax was being introduced to help finance the reduction in the
wealth tax, the government will now need to find a replacement source of
revenue. The belief is widespread that the likely candidate will be an increase in capital gains tax on building land.