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22 August 2013 The French government is to increase capital gains tax relief on investment properties and second homes, shortening the exemption minimum holding period to 22 years from 30. Along with a temporary 25% cut in capital gains tax over the next year, the move is intended to increase the supply of available housing. Gains on investment properties and second homes are subject to a 19% tax rate, with an additional tax of 2%-6% on gains of more than €50,000. From September taxable gains will be reduced by 6% a year after five years of ownership and by 4% in the 22nd year, leading to total exemption after 22 years compared with 30 years previously. However, gains will still be subject to social charges of 15.5% for 30 years. The base for these charges will be discounted by 1.65% a year between six and 21 years of ownership, 1.60% in the 22nd year and 9% a year thereafter. The base for both capital gains tax and social charges will also both be reduced by an exceptional 25% relief between September 2013 and August 2014. The reform is intended to “make the property market more fluid, support activity in the housing renovation sector and lead to a decline in prices that will help first-time buyers and tenants”, the Budget Ministry said. The 25% additional relief is designed to lead to a positive “supply shock” in the short term and ensure that the longer-term reform gets off to a solid start. The previous centre-right government reduced capital gains tax relief on the sale of second homes and rental properties, increasing the period of ownership needed for full exemption from the tax from 15 to 30 years, but this led to a drying up of sales. The new reform will be the third overhaul of the regime since 2004, whereas property investors need more stability in taxation, because of the long-term nature of their investments, said Victor Pagès, founder of My US Investment. Meanwhile, for undeveloped land the government is planning to abolish capital gains tax reliefs for longer periods of ownership, to encourage the sale of vacant land for housebuilding. The moves will be included in the 2014 budget. pie Continue reading →