The French government is to cut capital gains tax on investment properties and second homes by 20% in 2013 to stimulate the slowing housing market, while increasing the tax on undeveloped land. The measures are expected to feature in the government’s 2013 budget on Friday, along with a new buy-to-let tax break in place of the current Scellier scheme.

The previous centre-right government reduced capital gains tax relief on the sale of second homes from February, with the result that such properties are now only fully exempt from the tax after 30 years of ownership compared with 15 years previously. The housing ministry said sales of rented properties and second homes have dried up since the change, and the planned 20% reduction in the capital gains tax base for such properties in 2013 is intended to free up the market. “The idea is to create a window of opportunity in 2013 that leads to a burst of sales,” officials told Le Figaro newspaper. The government expects the increase in transactions to lead to a net revenue gain despite the lower capital gains tax charge. The move was welcomed by the FFB building federation. At the same time the government is planning to increase capital gains tax on the sale of vacant land, by removing reliefs for longer periods of ownership which it says encourage landowners to hold onto land for too long before selling for construction.

Housing Minister Cécile Duflot said the tax on vacant housing will also be increased and its coverage extended to all towns of more than 50,000 people where housing is in short supply, compared with towns of more than 200,000 currently. The government is also looking at the possibility of a tax on empty offices. “There is 3m sq.m. of vacant office space in the Ile-de-France region and a housing shortage of hundreds of thousands of homes. This situation cannot continue for long,” she told Le Figaro. The government is holding discussions with social landlords to understand why owners are reluctant to sell empty office buildings to them, she said.

Duflot also outlined details of the replacement for the Scellier buy-to-let tax break to be included in the 2013 budget. The new scheme will offer a bigger tax reduction but will also come with tighter conditions, allowing buyers of new properties to offset 17%-20% of the acquisition cost against their income tax bill over 9-12 years, but only if the property is let to those on modest incomes at rents 20% below market levels. The Scellier scheme, which expires at end-year, allows buyers to offset 13% of the purchase price over nine years, but without the same tenant income and rental conditions. Duflot said the geographical coverage of the new incentive will also be reduced so that it is focused on the areas of greatest need.

She said the government wants to encourage a wide range of investors to buy into French housing and the new scheme will be an incentive for individuals to invest in affordable buy-to-let homes. But it also wants to attract institutions. “They had 15% housing in their portfolios 15 years ago. Now they only have 5%. I am looking at how to bring them back.” Duflot said Paris is still studying the possibility of extending the PTZ+ interest-free loan for first-time buyers to purchases of existing homes after the prior right-of-centre government restricted it to new homes earlier this year. Overall, the 2013 budget is expected to contain €20bn of tax increases and €10bn of spending cuts, and will also introduce President François Hollande’s 75% tax band on incomes of more than €1m – although this will apply only to earned income. Investment income will be excluded.

Article by Property Investor Europe www.pie-mag.com