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French Tax Reform and Holiday Home Investment

French Tax Reform and Holiday Home Investment

The French holiday home market is one of the most established and understood investment destinations in Europe. Overseas property investors have helped to increase property prices, which have continuously risen with the increase in cheaper and more frequent flights from more destinations across regional French airports. Property prices rose by 15 per cent in 2007 with overall rises in the last 4 to 5 years of 70%. Economists speculate whether these fantastic returns can continue without help from the French Government...

The French population is not increasing and same rate as the UK and the pressure on land is much less and the land area for new builds much greater. Despite these demographic advantages, certain holiday hotspots such as Cote d'Azur, Provence and the Dordogne a have simply been overwhelmed by British people buying french holiday homes abroad to the point where people are doubting the prices will rise any higher. Indeed, some prices have stagnated in some areas and even fallen. Local people have been squeezed out of the market - particularly the younger generation. Voters have demanded action and the newly elected, President of France, Nicolas Sarkozy has listened and acted...

For the half a million British people who have estimated to have purchased a home in France, the recent tax reforms introduced by the newly elected president will prove a great relief. Part of his housing and employment reform includes legislation which will benefit holiday home owners and British experts now living in France, as well as French Property owners in general. These measures include; firstly, scrapping death duties or what we commonly known here in the UK has inheritance tax (IHT). Duties will be scrapped on the French Property for the vast majority of the population as well as the introduction of a husband/ or wife exemption (for a similar to the UK IHT exemption that has existed for many years).

The main reason that this is been introduced, (excluding the obvious political advantages for the president) are that the taxes been perceived as being unfair - upon the death of either husband or wife death duty is due on the property despite the surviving member continuing to need the property to live. As ordinary people have seen the value of their properties rise over time, so they have become caught in to death duties tax thresholds, (similar to the way in which a huge majority of working class and middle class people in the UK have fallen now it's the inheritance tax brackets thresholds as their property has risen in value). In addition, the IHT allowances gifts for the children of deceased property owners, have increased by a factor of three to 150,000. In effect the younger generation will not be taxed as much when they inherit their parents property, regardless of whether they are French nationals or holiday homeowners from the UK.

Secondly, the proposed legislation will also provide tax relief on 20% of the mortgage interest in the first five years. This is aimed to stimulate continued growth in the French Property market and economy in general. The growth it is targeted at the younger generation who are finding it increasingly difficult to get onto the property ladder as prices continue to rise similar to the problem in the UK.

As well as benefiting overseas Property Investors and holiday homeowners, the French government has ensured a expatriates wishing to benefit from the excellent French Health Care System must renew their membership to ensure that they are liable for free services. The French government is wishing to to ensure a fairer taxation system exists to relieve pressure on French Health Care System from people from within the EU moving into France. In addition Mr.Sarkozy wants to provide future incentives to attract French nationals who are very wealthy and have previously left the country have to escape historically high French taxation, to return to France. This will have the effect of boosting the high end property market.

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