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.