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 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.

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 a number of 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.