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New French CGT law to spark selling frenzy

Changes to the capital gains tax system in France are likely to herald a glut of sales over the next few months as owners of holidays homes look to save money by selling their properties in advance of the new rules coming into force. Currently, secondary residences are exempt from capital gains after 15 years of ownership. From 1 February 2012, this will double, meaning it will take 30 years of owning a property before it will result in a tax-free sale.

20 November 2011

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Says Fred Schiff, international team at property consultancy Knight Frank: “For second home owners in France, especially for those who have owned for between 15 and 30 years, this proposal may come as an unwelcome change. They could now be faced with an additional and unexpected tax burden upon the sale of their property.

“Consequently many have become more motivated to sell, which has been reflected in a significant number of price reductions.”

The French government has estimated an income of €180m in 2011 and €2.2bn in 2012 from the new capital gains tax alone.

Under the new law, capital gains tax will still be applicable in its entirety during the first five years of a property’s existence, then between year five and year 30 of ownership (same owner) the tax will gradually be reduced as follows:

  • six to 15 years ownership – two per cent a year (up to 20 per cent cumulative);

  • 16 to 24 years ownership – four per cent a year (up to 52 per cent cumulative);

  • 25 to 30 years ownership – eight per cent a year (up to 100 per cent cumulative);

  • over 30 years – 100 per cent allowance.

The new law is expected to have a significant effect on the French property market, especially in sought-after areas for international buyers and investors. n

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Tax & Wealth structuring