UK residents owning property in France are likely to see an increase in the French taxes they pay from 1 January 2012, according to KPMG in the UK as a result of two key changes.
The first of these changes is the introduction of a new annual tax levied on non-French residents owning property in France that is not rented out.
The second change to potentially affect French property owning residents comes as a result of a number of amendments to the French wealth tax rules. Within these changes are proposals that would bring properties worth more than €1.3 million owned via a company into the scope of the French wealth tax regime.
A KPMG spokesperson, said: “These are significant changes and Britons with property in France need to look at them carefully to see how they are affected. Although the new rules are set to come in from January 1st next year, we do not yet have full details of how they will work. It does seem though that some people will see their annual tax bills double and they could also face paying wealth tax as well.
“The changes to the wealth tax regime are a double edged sword in the extent to which they affect Britons with properties in France. Those who own valuable (€1.3m+) properties via a company are likely to find themselves drawn into the wealth tax net and thus paying an extra tax. But those who are already subject to French wealth tax rules because they don’t own their properties in this way may see their tax bills fall as the actual rates of wealth tax are reducing.”
The changes are set to be adopted by the French parliament by mid-July this year and are still subject to change. But in KPMG’s view most UK residents with property in France are set to pay increased French taxes from next year.
Details of the proposed changes to French property taxes:
1) New Property Tax for non-French residents
Non-French residents owning residential property in France, which is not rented out, will now pay an additional annual tax. The tax will apply whether the property is owned personally or through a company or trust. The new tax will be payable in addition to the existing taxe d’habitation (a tax levied on the occupiers of a property be they owners or tenants which varies according to the property’s location and notional rental value) and the taxe foncière (a tax levied on all property owners which varies according to the property’s location and notional rental value) which are currently paid. The new tax will be the same amount as is payable under the existing taxe d’habitation as it will be 20 percent of the “cadastral value” (or notional rental value calculated with reference to a land values database) of the home, payable each year.
The cadastral value is currently used to calculate the existing taxe d’habitation and taxe foncière and so property owners should be able to calculate how much the new tax will be for them as it will be the same as the taxe d’habitation. It should be noted that the current cadastral values are based on valuations from the 1970’s. There has been speculation that these values may increase in the future but no revaluations for individuals have been announced to date.
The new tax only affects Non-French residents owning property which is not rented out. An individual may also be excluded for the first 5 years after ceasing to be resident in France or if more than 75 percent of that person’s worldwide income is French source.
To put the new tax into context, an individual owning a property in the South of France worth €1m is probably paying around €3,000 per year at present corresponding to €1,500 for the taxe d’habitation and €1,500 for the taxe foncière From next year the total tax payable is likely to amount to €4,500 Euros per year. In the case of a property in the Normandy region, worth €400,000 the taxe d’habitation can amount to €1,000 and the taxe foncière around €1,000. The total tax bill as from 2012 would therefore reach around €3,000 with the additional new property tax included.
2) Wealth tax changes
There are also some significant changes to French wealth tax proposed. Wealth tax is currently payable by UK residents with French assets in excess of €800,000. For UK residents, wealth tax typically applies to French property and shares in French companies. It is an annual tax based on scale rates up to a maximum of 1.8 percent per year.
However, from 1 January 2012 the wealth tax rates are actually reducing. You will have to own assets in excess of €1.3m before you pay any wealth tax. For non-French residents with French assets worth between €1.3m and €3m they will pay 0.25 percent tax per year on the total value of their French assets per year. UK residents with French assets in excess of €3m will pay wealth tax at 0.5 percent per year. If you do fall into the wealth tax net the way the tax is calculated is also changing. In the past you only paid wealth tax on the amount over the €800,000 threshold, however from next year if your French assets exceed €1.3m you will pay wealth tax on the total value of your French assets.
Many UK residents are currently not liable to pay French wealth tax on property because they buy it through a special type of company, known as an SCI company, which is funded by a shareholder loan. From 1 January 2012 this route will no longer take the value of the property outside of the wealth tax net and so all UK residents owning French property worth more than 1.3m Euros are likely to have to pay wealth tax from next year.
Someone with French property worth €1.5m will see their wealth tax bill fall by €480. They are currently paying €4,230 per year [(1.5m – 1.3m @ 0.75%) + (1.3m -800k @ 0.55%)] but from 1 January this will reduce to €3,750 (1.5m @ 0.25%).
Someone with French property worth €2.5m will see their wealth tax bill fall by €5,480. They are currently paying €11,730 per year [(2.5m – 1.3m @ 0.75%) + (1.3m -800k @ 0.55%)] but from 1 January this will reduce to €6,250 (2.5m @ 0.25%).
A KPMG spokesperson commented: “The proposed wealth tax changes are quite complex. However if the person in our example owned the property via a company they probably weren’t paying wealth tax in the past so the €3,750 a year will be an additional annual cost of owning the property.”
For further information please contact:
Margot Cowhig, KPMG Corporate Communications
Tel: 0207 694 4246
Mobile: 07920 274856
KPMG Press Office: 0207 694 8773
Notes to editors
KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and operates from 22 offices across the UK with nearly 11,000 partners and staff. The UK firm recorded a turnover of £1.6 billion in the year ended September 2010. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. We operate in 150 countries and have more than 138,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client services.