Earlier this year tax was once again in the news with newspaper
headlines such as “French tax grab on holiday homes” (The Telegraph) or
“Holiday homes in France hit with massive tax hikes” (Daily Mail).
In fact these headlines may be misleading and those who have holiday
homes in France may be interested to know that the outcome of these changes,
included in the French Budget announcement made on July 4th 2012, is
more likely to change the balance of tax paid between France and the UK rather
than adding to the total.
This is because it is likely that the new tax which is now being charged
to, among others, UK residents on their letting income from French property,
will be eligible for credit against their UK tax liability. The French rate of
tax on rental income was announced to be 35.5% so if you are a 40% UK tax payer
you will effectively pay 4.5% to the UK Revenue and 35.5% to the French. Where
the French property is not let, the new tax will not apply.
French tax on gains from the sale of property in France was announced to
be 34.5% which nominally is in excess of the top UK rate of capital Gains tax
of 28%. However, the amount subject to French Tax is normally reduced where the
property has been owned for three years or more and not charged at all where
the property has been owned for more than 22 years. So it is possible that the
effective French tax rate could be similar to or lower than the UK rate and
provided that credit is given for French tax paid, there would be little or no
UK tax due.
All owners of French property should review their position and, with the
help of their accountants and tax advisers, see just how much these new
provisions will affect them. It may not be quite as bad as they think.
For further information/advice on this topic please contact Ward
Williams:
01932 830664, www.wardwilliams.co.uk
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