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New Restrictions on French Mortgage Tax Relief

Mortgage tax relief for new properties is to be restricted to those that meet strict environmental standards.

‘I have no intention of continuing to provide support for the construction of dwellings that are a sieve in terms of their energy consumption’, said President Sarkozy last month.

Accordingly, the deductibility of mortgage interest for new dwellings will progressively be reserved for very low energy consumption properties.

Existing properties remain unaffected by this proposal, as the announcement is clearly aimed at trying to persuade developers that they need to improve the energy performance of newly constructed dwellings.

At the present time french mortgage tax relief is available at the rate of 40% of the interest in the first year, and 20% in each of the following four years, after which it ceases.

The relief is capped at €3750 for a single person and €7500 for a couple, with an additional €500 for each child or other dependant person in the household.

Those who do not pay French income tax are entitled to a tax credit (in the form of a payment) equivalent to the amount they would have otherwise received in tax relief.

The relief is only available for the purchase of the main home.

The introduction of mortgage tax relief in France was one of the main pledges made by Nicolas Sarkozy in his 2007 presidential campaign, so the announcement that it is to be curtailed so soon after it was introduced is not going to go down too well with the public.

It has no doubt in part been motivated by the need to find new ways of cutting back on public expenditure (it costs around €1 billion a year and rising), but it is also a reflection of the high priority that is being given to the environment by this government.

Although details of the new measure have yet to be formally announced, it would appear that tax relief on new dwellings will eventually be restricted to those who meet the standard of Bâtiments Basse Consommation (BBC).

Next year, for those properties that do not meet the BBC standard the relief of 40% in the first year and 20% in the four subesquent years will reduce to 30% and 10% respectively; in 2011 the rates will fall to 25% and 10%; from 2012 they will fall to 15% and 5%. From 2013 the BBC standard will be mandatory in order to obtain the relief of 40% over 7 years.

Properties constructed to the BBC standard are required to achieve an average energy consumption no higher than 50 kWh/m² per year, although this figure does vary by region and altitude.

Last year around only 13,000 new homes were constructed to this standard, a paltry figure compared to the total of around 400,000 homes that are constructed each year.

Dwellings built to the low energy consumption standard already benefit from mortgage tax relief for a period of seven years, while it is capped at five years for all other properties.

You can read more about French mortgage tax relief in our comprehensive Guide to French Mortgages.

You can also request a quote or use our mortgage calculator using the french-property.com French Mortgage Website.

This article was featured in our Newsletter dated 01/10/2009

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