Second homes: an exceptional reduction of 25%
A new reform has been announced by the French President, François Hollande, in June 2013. The minimum holding period for a second home, after which taxes are exempted when you want to sell it, is going to be reduced from 30 years to 22 years.
The French Minister of the Budget, Bernard Cazeneuve, has decided to apply an exceptional reduction of 25% on the CGT for the sales which will be finalised between the 1st September 2013 and the 31st August 2014. This decision is part of the reform of the taxation of capital gain taxes on second homes in France.
What are we talking about?
When a holiday house is sold in France, very often there are capital gains. It is important to know that CGT are exempted after a certain period. This period was 15 years before 2011.
When a householder wants to sell his main residence, he realizes a capital gain compared to the price he bought it. Basically, this capital gain is exempted from taxes. This allows the seller to purchase a larger property thus climbing the property ladder, which is very often more expensive.
Yet, this exemption rule is not valid for a French second home sale, which is taxed to CGT and social security charges (CSG and CRDS). But to avoid a decrease of the purchasing power, taxes on these capital gains were exempted after a certain period. This period was 15 years before 2011.
In fact, the new reform which had been settled in 2011 incited second home owners to keep their property during a longer time (30 years), whereas it was necessary to ease the Real Estate market during the crisis. This caused a blockage, paralyzing the second home sales on the French market.
The former system was as follows: every year, a 5% reduction was implemented from the second year of holding, on the gross capital gains. From now on, the exemption on the social security deductions is going to be more gradual every year over a period of 22 years.
This new reform is supposed to avoid the property retention, promoting housing constructions and inciting people to purchase a second home without modifying their purchasing power.
In addition, the reductions of the minimum holding period for the building plots are going to be cancelled, in order to encourage the property sale in France.
For the moment, according to the Minister of the Budget, this exemption will be instituted in a much more linear and progressive way with a 25% reduction on CGT for sales finalised between the 1st September 2013 and the 31st August 2014.. In fact, it will be a two-speed reduction: one will be implemented on the income tax and the other on the social security deductions.
The actors on the French property market think that the market would need even more simplicity, visibility and stability. But in addition to this positive stimulus from the French government, The President said yesterday to international journalists that the economic crisis was coming to an end in France. This is a very good sign for the future investors.