How will Sauce Hollandaise will affect property taxes for foreigners?

There is a French expression “à quelle sauce serons nous mangés”. Literally, what sauce will be served when we are eaten up by the taxman.

HollandePresident François Hollande’s Socialist Party now has a comfortable majority in the French parliament and will be looking under every stone – and roof – for new revenues. How is that likely to affect a foreigner buying an expensive property in France? Quite rightly the French fisc has been waging war on tax-avoiding property owners for years. Originally the stated targets were French people exporting their capital to countries with more accommodating tax systems and then bringing some of it back under the cover of foreign companies to buy luxurious properties. Little by little the taxman’s armaments have become more sophisticated and the meshes in his net smaller and smaller. Tax and financial advisors have also honed their skills and the avoidance structures have mirrored the evolving tax legislation in their efficiency and complexity.

It seems unlikely that anything in the Sauce Hollandaise could not be satisfactorily diluted, entirely legally, by the right advisors – an efficient protective structure can always be found. Indeed although the impact on an already fragile market may initially be damaging it will create even more of a buyer’s market. For opportunists, the adventurous or just the plain committed, there are deals to be done. Genuine vendors are much more willing in today’s circumstances to negotiate, especially if they have the sense the buyer is well-qualified.

For non-residents it is comparatively easy to structure a purchase intelligently – as long as the steps are taken before any irrevocable contract to buy is signed.

What other taxes should a foreign buyer consider? Inheritance laws and taxation of wealth (ISF) are very specific in France, but again a foreigner with the right advice can ensure these have minimal impact. Wealth tax rates will certainly increase under the new socialist government, but judicious financial planning (for example a mortgage with a charge on the property) can mitigate the problem. This is easier for a non-resident to organise. The ownership period for total exemption from capital gains tax on non-principal homes was raised from 15 to 30 years by the previous government and it is unlikely this will be moved upwards. Apart from wealth tax increases, socialist proposals seem to be limited to increasing tax on rental income and Capital Gains Tax by 15.5%.

Will the Sauce Hollandaise make it unpalatable to own a home in France? Not if the buyer is extremely tough when negotiating with the seller and seeks appropriate tax advice. The key is finding the right property, paying the lowest possible price and taking the best advice on tax and structure. Bon appétit!

By Stuart Baldock,