French capital gains tax uncertainty leads to attractive buying conditions in France12th September 2013
The French government’s recent announcement regarding the changes to capital gains taxes marks the end of over a year of uncertainty since the initial changes made by Hollande during his first months in office. As a result of the initial changes, a reduction in countrywide transactions in the last 12 months and continued liquidity in the mortgage market has created attractive buying conditions for aspiring non-resident investors.
“For the past 12 months non-resident buyers have adopted a lay-low strategy, waiting to see what would happen with Hollande’s initial changes to taxation on wealth and property during 2012,” said Nicholas Leach at Athena Advisors. “This strategy has helped their own cause as a reduction in property transactions has meant prices have softened slightly, which means there are some great opportunities. Now that the government has clarified their position on taxes like capital gains buyers are returning in order to exploit the current mortgage rates while they still can. Buyers are in a much better position than there were 12 months ago.”
“However not all wealthy buyers chose to ride out the uncertainties over taxes. For example, the cutting off point for Wealth Tax is at €1.3m in net assets including property, so some of our client simply chose to finance part of their property to come in under this value, thereby exploiting the current low mortgage rates and locking in some real long term value.”
The French mortgage market is in good shape at the moment with French banks reporting 50% more completions scheduled for the second half of the year than the first 6 months. Yet with a return to positivity comes the potential for interest rate increases.
“We have already seen increases to the 10 year government bond rates in France and rates increasing with some domestic French lenders,” commented John Busby of French Private Finance. “However, the main banks for non-resident buyers have kept their rates the same with 20 year mortgages available for 80% of the purchase price at 3.25% fixed for the term or approximately 2% variable (a 1.80% margin again for the term). If buyers keep coming rates could definitely go up, but for now buying conditions are still excellent for people looking for finance in France with rates remaining at historic lows.”
Changes to CGT
As of 1st September 2013 the ownership period which applies to French CGT has been reduced from
30 years to 22 years for any capital gains made since 17th August 2012. A new taper relief has also been put into effect with a 6% annual reduction between years 6 and 21 and 4% in year 22.
“Most people who are currently buying a French property have at least a 10-15 year game plan so this new system will make a positive difference to their exposure than compared to the 30 year system,” added Leach.