CGT change could cost owners dear

ANYONE planning to sell a second home in France will have to do their sums again after the tax changes agreed by MPs and the Sénat as part of the government’s austerity plan.

Capital gains tax allowances on secondary residences have been reduced across the board and the tax exemption after 15 full years of ownership has been changed to 30 years so post-sale profits will be hit. In addition, no allowance will be made for inflation.

The CGT changes come on top of measures to increase the price of tobacco and spirits, increase the tax on health insurance mutuelles, increase the tax on sweetened drinks and impose a 2% tax on guests in four-star hotels. The austerity measures are intended to cut €12 billion from the state's budget in the next two years.

People selling a second home this weekend after 15 years of ownership will pay no CGT on the plus-value but a sale after February 1, 2012, when the CGT changes come into force, will be costly.

News site 20 Minutes did the calculations for a couple who bought a second home in Royan 15 years ago for €100,000 and which has doubled in value:

If the couple sell after February next year they face paying CGT of €26,000.

The tax is charged at 32.5% but incremental tax allowances over the period of ownership will cut the tax due until, after 30 years, the property is exempt from CGT. No allowances are made in the first five years of ownership but then a 2% allowance (formerly 10%) will apply between six and 16 years of ownership, then 3% up to 25 years and 10% between 25 and 30 years. After 25 years the tax will have been reduced by 50%.

If the couple wait to sell for another six years their CGT bill will be €18,200 and a further six-year delay will reduce it to €7,800.

If the couple decide to sit it out, there will be little solace in strong drink as the tax on spirits over 40% alcohol is rising by €0.90 per litre. However, wine and rum have been exempted.

Smoking will not help, either, as the tax on tobacco is to go up 6% next month to an average €6.25 and then another 6% next year.

Extra costs come with the doubling of the tax on health insurance (complémentaires santé) to 7%. This is expected to hit 90% of households in France and Stanislas Di Vittorio of Assurland.com said it would mean an average increase of €20. However, consumer group UFC/Que Choisir said that if insurers passed on the whole amount of the increase then rises would be between €20 and €100.

Meanwhile, the proposals to tax sweetened drinks brought a fizzing response from Coca-Cola which said it had postponed plans for a €17 million investment at its Pennes-Mirabeau plant in Bouches-du-Rhône. However, the protest fizzled out when company bosses were forced to apologise and blame a "communications error" although it was still unhappy at what it called an "unjust tax".