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French Taxation

French Mortgage Tax Relief Proposals in Doubt

Monday 03 September 2007

The mortgage tax relief proposals of the new government have been thrown into turmoil, following a ruling by the French Constitutional Council.

The Council declared it contrary to the constitution to make the tax break available to existing mortgage holders, and that it could only apply to those mortgages taken out once the new law had come into force.

As the law has only just been published, it means that millions of people who were anticipating tax relief on their existing mortgage now find that it will no longer be the case.

Mortgage tax relief was one of the central pillars of the Sarkozy election campaign, so there are many red faces at this unexpected ruling.

The Council argued that, if the new tax relief was being granted with the objective of increasing home ownership, then it could hardly be meeting this objective by granting it to existing homeowners!

The government have promised that new legislation will be passed to cover those who took out mortgages following the election of the new President on May 6th, but they have now conceded that it cannot be applied to those who held a mortgage before this date.

Under the new law, tax relief is limited to the purchase of the main home, and for a duration of five years.

In an attempt to cover their embarrassment, the government have decided to double the amount of relief that is available from that under the original proposals, but only for the first year of the mortgage.

Accordingly, in the first year tax relief will be granted at the rate of 40%, and then at 20% of the interest incurred on the loan for a further four years, although the amount of relief is capped.

A couple with no children would be entitled to up to €3000 tax relief in the first year, and with maximum tax relief of €7500 over the entire 5 year period.

If the household does not pay income tax (as is the case with around 50% of the population) they would be eligible for a 'tax credit', in an equivalent sum to that they would otherwise have received in tax relief. In other words, the taxman will send you a cheque!

This tax break is available to expats buying a permanent home in France.

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