Changes to the tax treatment of mortgages, inheritance tax, wealth tax and health charges will all impact non-nationals with residential property in France that they use as their primary residence. This has implications for as many as 100,000 UK citizens that have settled across the Channel permanently, The Times reports.
The introduction of mortgage interest tax relief is probably the most significant change to the financial framework of investing in property in France. However, it’s essential to realise that the change is subject to strict limitations, the chief of which are that it only applies to purchases made since mid-May and only for the first five years of the loan.
There are also ceilings on the amount of interest that benefits from tax relief €1,500 for couples and €750 for single people – according to French Property News, which points out that there is a cap on the total proportion of tax relief that benefits from tax relief of 20%. The magazine does not make clear if this is each year or for the lifetime of the mortgage; it seems a difficult calculation for anyone (purchasers or tax authorities) to make if the latter is intended.
Barclays Bank are offering a variable rate mortgage for property purchases in France with an introductory rate of 4.35% and 1.15% above the interbank rate (Euribor), currently 4.781% or a 25 year fixed rate mortgage at 5.10% (not much more than the seven year term fixed rate at 4.95%). Taking the variable rate mortgage (after the first 12 months) as an example it seems that you would only be looking at the purchase of just over €25,000 worth of property.
The new regime seems clearly designed to benefit purchasers at the lower end of the property ladder, giving proportionately the most assistance to purchasers buying properties at around â‚¬126,000. In terms of French property this is a much more significant sum than would be the case in the South of England (or Ireland). Possibly, the most interesting question at this juncture is whether or not the French government has plans to be more generous with mortgage interest tax relief in the future, growth and stability pact permitting.
The changes to inheritance tax (IHT) will be important for UK citizens who have retired to France. Property passing to spouses will now receive the same (exempt) treatment as it would in the UK. The IHT allowances for each son or daughter rise from €50,000 to€150,0000. The actual IHT rate remains on a sliding scale from 5% on amounts up to €7,600 to 40% where the taxable element of the inheritance is over €1.7m.
With regard to the French wealth tax (Impot sur la fortune – ISF) the key change is a reduction from 80% to 70% in the proportion of your assets that are subject to the tax. In terms of French residential property, this makes the tax significantly more avoidable. However, it is important to remember that residency in France means that non-French assets come within the ambit of ISF with serious implications for those who still own property in the UK. The recent tax treaty between France and the UK does allow for a five year exemption period from this onerous levy. It’s important to remember that the ISF is levied on the household rather than individuals but there are exemptions relating to the ownership works of art, antiques, farmland and woodland, and assets relating to employment.
The changes to healthcare charges relate to the refunds available to people who have not yet reached retirement age but are not working.