The New French Connection: Second Homes In France To Suffer Increased Tax Charges
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...
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