2013: New property taxes in France

The government presented the budget for 2013 last Friday. As expected, the taxation of real estate will be revised. Let’s have a look on the main reforms that will apply next year, subject to ratification.

A new rental investment tax system

The Scellier law is to be replaced by the Duflot law. From January 1st 2013, individuals who buy a new property for rent will benefit from a tax deduction equivalent to 18% of the amount invested in the limit of 300,000 euros. The tax deduction will be spread over nine years. To take advantage of this fiscal advantage, landlords will have to lower the amount of the rent of their flats by 20% compared to the average price of the market.

The new system will apply to homes situated in Zone A and Aa (Paris and its suburbs, a part of the French Riviera and the French Genevois, some cities located in Haute-Savoie, Var and Alpes-Maritimes), B1 (urban areas with over 250 000 inhabitants, Corsica, Paris suburbs, and the small towns). Cities in the B2 zone may also be included if they have more than 50,000 and less than 250,000 inhabitants, subject to the authorization of the local government prefects.

The goal set by the government is to generate the construction of 40,000 new homes in 2013.

Capital gains tax reduced

To generate a bigger turnover, taxes in capital gains (excluding principal residences that will remain exempt) will be temporarily reduced. A further discount of 20% on the CGT bill will be given to the owners who sell their property in 2013.

Currently, capital gains tax is 19% for the first five years of ownership to which social security contributions of 15.5% are added, making the effective tax rate 34.5%.

At the moment, the property owner receives a discount via taper relief of 2% per year between the sixth and the seventeenth year of ownership, followed by 4% per year after the seventeenth year, and finally 8% annually after twenty-four years which lead to a total exemption after 30 years.

In 2013, the 20% discount will be exceptionally added. For instance, an owner will now benefit from a reduction of 22% (20% + 2%) if he sells his second home after six years of ownership, 24% after 7 years and so on…

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