French Government reveals post-Scellier taxation19th September 2012
The bill, currently being debated in Parliament, aims to accelerate the construction of public social housing and dispose of some of the State’s lands for free or at a discounted price thanks to several new tax incentives and adjustments.
Why will the French Government
introduce a new tax incentive for private investors instead of the already
existing Scellier which will disappear by the end of 2012?
With the crisis, the house construction market has slowed down. Between January and July, new building sites launched have fallen by 12.5%. To reverse the trend and to get the chance to respect the objective of building 500,000 new homes a year, the French Government realized that he could not ignore the private investors. Therefore, besides social landlords, institutions (banks, insurance companies ...), and homebuyers, the Government will also have to mobilize private investors. This new taxation will attempt to encourage them to purchase intermediate social housing, which will be placed on the market at affordable prices in areas under tension, where there are clear housing needs. The challenge is both social and economic. Housing construction accounts for 12% of the French GDP in taxes and provides € 2 billion of government revenue and $ 600 million to local communities.
The Scellier had led to build new homes in areas without real need of housing and often with too high rents, which, for sometimes have not been sold, putting many investors in trouble.
What will be the characteristics of the new tax incentive?
It will be a more incentive tax than the Scellier but, in return, it will include enhanced social requirements from investors. The tax reduction rate will be between 17 and 20% over a period of between 9 and 12 years, which is higher than the current rate for the classic Scellier (13% over 9 years) and the intermediate Scellier (17% over 12 years and 21% over 15 years). A bonus is also intended for buildings with high energy efficiency. However, to be able to benefit from the tax reduction, the investment shall not exceed 300,000 euros.
How can a private investor benefit from Duflot’s new taxation?
The French Government’s objective is simple: to build affordable housing where it is needed, especially for the middle-class. Thus, the taxation will only benefit to housing where rental income will be capped and where rents are 20% below the average market rents. Hence, it will target a totally different range of assets than what was practiced with the Scellier. The corresponding areas are less numerous than in the zoning used in Scellier to limit the incentive where there are concrete needs. If there is no need of new housing in some areas, private investors won’t be eligible for the tax incentive.
Will tax on vacant housing be raised?
Yes. This tax permitted to offer new homes on the property market in Lyon, for example. The tax schedule will be raised and it will be applied in all agglomerations of more than 50,000 people instead of only 200.000 people nowadays. This measure will be reinforced in 2013.
What about the taxation of capital gains?
The taxation of real estate capital gains will be reformed to allow a supply shock in 2013 and fight against the retention of land. While so far the current capital gain taxation encourages retention, the Minister Cécile Duflot is trying to encourage owners to sell their land to build new housing. Indeed, nowadays, taxation on capital gains is regressive and allows exemption of any tax on capital gain after 30 years. To prevent this trend, the idea of reversing the tax system was already suggested under the Fillon Government but had not then been implemented. Thus, if the draft is passed, the longer a household owner will keep a building plot, the more he would be taxed on capital gain after resale. Ideally, this new taxation
system would recover between 20% and 30% of the land on the market and allow the building of new housing.
What the press does not mention: the BIC taxation - bénéfices industriels et commerciaux
As the Government did not mention anything about it, rent incomes from the rental of a furnished room or apartment, or a furnished house under the category of industrial and commercial profits (BIC) should still not be taxed. If an owner rents a part of his furnished principal residence to a tenant who also plays as a principal residence, his rents should be exempt from income tax and social security contributions, provided they are reasonable. According to the tax authorities, this condition is satisfied if the rent has not exceeded € 174 per m2, charges not included in Ile-de-France, and € 127 in other regions in 2011.
We will have to keep an eye on this as it directly concerns the leaseback market…
Source: Le Figaro and Le Point