Home owners fear capital gains blow

HOME OWNERS in France could be forced to hand over 31.3 per cent of the profit on the sale of their main residence.

A decision is expected this month. At present, capital gains tax (CGT), which stands at 19 per cent, is levied only on sales of second homes; neither CGT nor social charges of 12.3 per cent are levied after 15 years’ ownership.

Now the removal of main residence exemption is being looked at by the government as part of a package of finance reforms.

President Sarkozy said it is "more logical" to tax people when they make a profit on the sale of a home rather than on ownership. Finance Minister Christine Lagarde also confirmed that CGT on main homes will be on the agenda, although UMP MP Jérôme Chartier, who originally suggested the idea, has suggested taxing only sales worth at least €1.2 million.

The French treasury has just released figures showing that property prices rose by 111 per cent between 1999 and 2009. In 2007 (the last year for which figures are available), 58 per cent of households owned their home. Since then, the Sarkozy government has encouraged home ownership with eyecatching interest-free loans.

The government’s plan was described as "outrageous" by the deputy president of estate agents’ representatives Fnaim in Aquitaine, Charles Gillooley. He said the idea would make the government "much worse off", because it would lead
to a considerable reduction in sales, on each of which about six per cent goes to government as its share of notaires’ fees.

The principle of main home exemption had always been upheld in Europe, he said. "It is true it is open to abuse: before 2004, you had to have owned your home for five years; now you just have to prove you live in it, which enables people to do it up then sell it on. However removing exemption would be extremely unpopular."

He said it could deter people thinking of moving to France, as well as French nationals who know they may have to move for work reasons in a few years. It would also encourage under-declaration of sales.

"If the government is stupid enough to do it, it will lose the next election."

Property and finance consultant Harris Raphael of Pioneer France said some clients thinking of buying in France as part of a permanent move had been raising the question of CGT.

"It would certainly have a detrimental effect on the number of people who would think of moving to France and the number of sales, just as wealth tax has been a consideration for some people, whether it be clients thinking of retiring
here, or those considering buying a holiday home to move into permanently later on."

He added, however, that he thought it unlikely the government would go ahead, because "French nationals would be up in arms".

In a separate issue, financial experts believe it may soon legislate to levy social charges at 12.3 per cent on capital gains on second home sales after 15 years.

Connexion financial expert Hugh MacDonald said the draft 2011 Finance Law included this, although it was withdrawn at the last minute. He said insiders believe it is almost certain to come back, possibly in a supplementary finance law,
and as soon as June.