12 | FINANCE


INDUSTRY By Geoff Hadwick


THE French government announced last month that overseas property owners who live abroad could be taxed the equivalent of a second council tax on their French holiday homes. The new tax would apply to properties


owned by people who are not resident in France, who don’t pay French taxes and who keep the properties for their own use. It’s likely that owners who rent their properties out will not be hit by the changes. OPP understands that the new system


would be based on 20% of the cadastral rental value, a theoretical annual rent value used by tax offi cials, to calculate the local rate of taxe foncière and taxe d’habitation. According to leading French fi nancial newspaper Les Echos this equates roughly to a second taxe foncière for the properties. The new rules could come into force


from January 1 2012 as part of a new fi nance bill that was presented to the French cabinet last month, the fi rst stage before a law is debated in parliament. Budget Minister François Baroin


justifi ed the tax on the basis that people with holiday homes pay towards local services through their normal residential taxes, but don’t contribute to national services and infrastructure, even though they benefi t from them while in France. There would be a six-year exoneration


for people who had been French tax residents and then moved abroad. Anyone who could show three years of tax-residency in France during the


www.opp.org.uk | JUNE 2011 French tax sting hits second-homes New tax | on absentee second-home owners to cover nationally provided services


previous decade before they left the country would also benefi t. The changes will affect at least 360,000 second homes, many of them owned by British or Dutch citizens and, if the tax, which is equal to 20% of rental value, goes ahead agents are already predicting a major crash in the country’s overseas homes market. “Being owner of one or more second


homes implies that one benefi ts directly or indirectly from local and national public services, like the police, legal system and national infrastructure,” the fi nance ministry told OPP. According to Thibault de Saint


Vincent, chairman of luxury property agency Barnes, “an extra €15,000 to €20,000 per year won’t matter to the super rich,” but agent Emmanuel Garcin warned: “This new tax could reduce the enthusiasm of foreigner buyers.” The law has clearly been written so


as not to apply only to foreigners - as this would breach EU law - but also to French citizens who have moved abroad


and are no longer French residents for tax purposes. The European Commission has said that it is going to “scrutinise” the new French tax proposals. Business leaders have questioned whether or not the plans, designed to help reduce France’s €176 million annual budget defi cit, might breach EU laws intended to ensure the free movement of capital. “The commission will study the


draft law, but we have to examine the wider reality,” a spokesman for taxation commissioner Algirdas Semeta said. “In principle, EU member states are free to set their own taxes but limits must be respected with regard to laws covering the free movement of capital.” “But there is no problem making a distinction between residents and non- residents -- unless their situations are directly comparable.” Possible workarounds are already


being touted. Overseas property buyers in France are being advised to choose


leaseback deals to avoid having to pay the new tax on second homes. Leaseback properties are part of a French government programme established in the late 1960s, and are rented out for a set period each year, so they’ll avoid this equivalent of a second tax, said Charlie Williams, business development manager at Terresens. “The proposed changes by the French government to the taxation of non-French resident property owners (which if passed will come into force from January 1st 2012) appear very popularist proposals to win votes in an election year. They do not attract foreign investment, may confl ict with EU principles and therefore may well not be agreed.” “Potential property buyers should


not be put off buying in France as leaseback properties, by their very nature, will be exempt from this proposed new tax.” Property lawyer, David Anderson


from Sykes Anderson LLP, echoed this advice, adding “if the property is rented and so not freely available to the owner the tax will not apply. This means leasebacks will not be affected.” “Leaseback purchases offer owners


the best of both worlds … freehold ownership of a property in France, guaranteed rental income (index linked) derived from the lease of the property to an appointed management company as well as personal usage throughout the year,” says Terresens. “In addition, VAT is refunded,


leading to a considerable saving of 19.6% for buyers.”


Thai government mortgage scheme launched


POTENTIAL Thai homeowners queued for hours last month at the Government Housing Bank (GHB) in Bangkok hoping to take advantage of a new state-backed interest-free mortgage scheme. The new programme has a total


of 25 million baht (US$827,800) available interest-free for the fi rst two years of a 30-year mortgage on houses valued at less than three million baht (US$99,300). The remaining mortgage would be paid at a rate based on the bank’s


conditions. The bank will also pay for the 1% mortgage fee and the 2% transfer cost. Queue cards had to be handed out


to the waiting crowd prior to the bank opening. Loans are accepted on a fi rst- come, fi rst-served basis and will be accepted until the end of the year says the Thai government … or until the available funds are all allocated. A customer borrowing 1.5 million


baht (US$49,600) can save about 100,000 baht (US$3,300) on the interest in the fi rst year of installments based on


GHB’s present minimum repayment rate of 6.75 % say local experts. Finance Minister Korn Chatikavanij


said this week that an average loan application is 1.5 million baht (US$49,600) and 60% of applications have come from outside Bangkok. Initial approval may take up to three weeks and all applications are expected to be approved within two months by the bank. Mr Korn said GHB must operate this


programme transparently for all people on a fi rst-come, fi rst-served basis.


Applicants to the programme must be buyers themselves. The programme is aimed at helping low-and-medium income-earners in light of rising interest rates and the cost of living.


Thai | homes made more aff ordable


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