Capital Gains change shakes up the French Property market

Although the prime property market has not been experiencing the same difficulties as the general property market in France, the change in the capital gains tax threshold while Sarkozy was in power had an effect on the pace of luxury property sales.

In 2012 when the government introduced a new austerity measure on capital gains tax for second homes – where the 15-year threshold for exemption was doubled to 30 years – many owners decided to sell their properties quickly before the law came in.

This caused a frenzy in the market and once the legislation came into force, the property market slowed again, with many deciding to keep their residences off market until they were closer to the new threshold.

Hollande described the move by Sarkozy’s government as a “mistake” and on 16 June 2013 announced he intended to reduce the 30-year period to 22 years. Since then French property, buyers, owners and those involved in the real estate industry in France have been waiting with baited breath to see if this pledge would be followed through.

Now, Home Hunts has received confirmation from its specialist tax partners, Rosemont Consulting, that François Hollande’s plan to move the threshold from 30 to 22 years on second home sales has been confirmed.

The French Budget Minister Bernard Cazeneuve has unveiled the government’s full plans to reform capital gains tax in France and confirmed that they will be applied from 1 September 2013.

“As a buyer’s agent, we could not be happier to hear this news,” said Tim Swannie, Director of Home Hunts. “It is fantastic for French property buyers and we have seen an immediate impact on the housing market. Enquiries, offers and sales are at the highest level they have been for the past five years.”

Not only will vendors be granted total exemption from income tax on real estate capital gains after 22 years, but the tax reductions allowed based on the holding period will be more progressive, explained Rosemont. In addition, progressive reduction in social levies will also apply to social contributions and a total exemption from social contributions will be granted after a 30-year holding period.

Furthermore – and this will be of particular interest to those looking to sell their French properties over the next twelve months – to kick-start the effects of this change, an exceptional, additional tax reduction of 25% will be applied to sales made between 1 September 2013 and 31 August 2014.

“Owners are keen to take advantage of the reduction in capital gains tax and are therefore pricing their properties realistically so they can sell quickly,” said Tim. “When you combine this with interesting exchange rates as well as the all-time low interest rates with the French banks, it is not surprising that international enquiries are flooding in.”

The government are also intending to abolish existing fiscal incentives that encourage constructive land retention, in order to boost the housing development market even more, and these changes are also due to be integrated into the country’s 2014 finance bill.