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The French Finance Act for 2012 was released on 4 July 2012 and
contains a number of measures which may affect UK taxpayers and
which are broadly summarised below.
As part of these measures, it is proposed that non-French
residents will be subject to a 15.5% French social security
surcharge on their French rental income derived from unfurnished
lettings or on their property gains. Consequently, from August 2012
French capital gains tax for UK residents who sell second homes in
France will increase from 19% to 34.5%. The tax on rental income
will also increase from 20% to 35.5%, applied retrospectively from
1 January 2012.
It is usually possible to offset a tax suffered in France
against the corresponding UK tax charge, but the social security
charge may not be considered to be a French tax for these purposes
and so may not be available for double tax relief in the UK.
UK residents who have a capital gain on disposal of a French
property will incur UK capital gains tax at the rate of 28%. In
addition, they will have a total tax charge in France of 34.5%, but
potentially only 19% of this could be claimed as a credit against
the UK tax liability. Those letting out their property will
potentially be able to be claim a tax credit of only 20% against
the UK income tax charge.
The 15.5% 'social charge' is currently paid by all
French residents, but its imposition on non-French residents may be
contested in the courts as it forces a social contribution from
individuals who will receive no benefit. The proposal is also
likely to meet political resistance, with the British Government
having previously challenged a similar proposal made by President
Sarkozy in 2011.
These policies have caused controversy as during his election
campaign President Hollande had specifically promised not to raise
taxes on non-residents. This has only fuelled speculation that the
proposals may only be the tip of the iceberg, with more expected to
follow in the autumn.
Other measures include a one-time exceptional surcharge that
will be levied on individuals with taxable net wealth over
€1.3m and which will need to be paid before 15 November
2012. The exceptional contribution will be calculated by reference
to the scale rates applicable for 2011.
Also, from 1 February 2012, the rules governing capital gains on
second homes have been changed, increasing the minimum period over
which a second home must be owned to obtain full relief against
capital gains tax from 15 to 30 years.
Any individual owning property in France should take specialist
advice to ascertain how the tax changes may impact them.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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