Brits hail French tax reforms

Published 24th Aug 2007

New tax reforms just introduced by Nicolas Sarkozy in France are set to shake up the French housing market for the benefit of both French and British buyers…

These new tax reforms are part of new legislation, which when translated is called ‘Work, Employment and Buying Power (W.E.B.). Within this W.E.B. legislation is a section bringing in tax relief on mortgages, free of all means testing – until now, unheard of in France.

From today, tax relief will be available to borrowers who are French residents, applicable for the first five years of a mortgage - particularly good news, as these are the most expensive years of high interest.

Trevor Leggett, Executive Director, Leggett Immobilier comments, “We have never seen anything like this before in France, although it does look a little like the UK reforms under Maggie Thatcher.

“These reforms are great news for British homeowners and housebuyers in France as they should energise the French housing market, causing property prices to rise and long term investment values to increase. What’s more, unlike so many things in the French system, this new W.E.B. legislation will be very straightforward in its application.”

A boost for young buyers
Trevor continues, “In terms of the overall French housing market, these reforms should allow considerable numbers of young people to get on the property ladder. In truth, unlike the UK, the property ladder is an entirely new concept in France and one that is only just starting to be accepted and understood.

“Eventually, of course, this will affect the lower end of the market, which will in turn push up the rest of the housing market – as we have already seen in Spain. For the moment, tax relief will only apply to new mortgages taken out from now, but plans to cover existing loans are in the pipeline.”

Here’s how it works

On your principal residence, the allowance will be up to 20% of the interest for the first 5 years of loan repayment. This will have a ceiling of 3,750 euros for a single person and 7,500 euros for a couple, plus 500 euros for each dependant living at home.

The ceiling is to be double this amount for handicapped people (7,500 euros for a single person and 15,000 euros for a couple, one of whom is handicapped).

And this new tax advantage continues to be available when the homeowner is forced to move home following a career change.

Example One

A married couple with 2 children need to move to a bigger home. They take out a new mortgage for 200,000 euros for 20 years @ 4% for the fixed term. (This could become a possibility in France but the interest rate is actually 4.2 to 4.3% at the time of going to press.) Over the first 5 years, the couple will receive 7,314 euros in allowances – a big reduction of 8% of the total cost of the loan.

Example Two

On 1 October this year, a 31 year-old single man takes out a 100,000 euro loan over 15 years @ 4%. He will save 3,466 euros in the first 5 years – a huge reduction of over 10% of the total cost of his loan.

This clearly shows that if you can afford it, a 7-year loan would offer you a considerable saving as the interest payment would be higher and you could use the ceiling level to its full potential.

Trevor ends, “The tax relief for mortgages also applies to New Build property – although the legislation states that you must be living in the property permanently on 31 December of the second year of building/ownership. So the best time to start a building project would be 30 December - which gives a full 2 years to build – and then take advantage of tax relief.”

Source: ' Move Channel Ltd '

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