French News Archive

Taxation

French Mortgage Tax Relief Abolished

Wednesday 01 September 2010

French mortgage tax relief is to be abolished, in favour of more substantial support for first time buyers.

The French Minister of Finance, Christine Lagard, has announced that the existing crédit d'impôt sur les intérêts d'emprunt immobilier is too expensive and inefficient, and is to be abolished from 2011.

The government claim that mortgage lenders do not take into account the tax credit when considering the level of the loan they grant to house buyers, so it fails to achieve the objective of increasing access to home ownership.

The announcement is something of an embarrassment for President Nicholas Sarkozy, for whom the tax credit was a key element in his presential manifesto in 2007. At the time he argued that it would make France ‘a nation of home owners’, a phrase that may be familiar to readers from the UK!

Property professionals have reacted positively to the change. ‘The crédit d'impôt is a tax benefit following the act of acquiring a property, but it does not cause the act of purchase’, considers Ren Pallincourt, president of FNAIM, the French estate agents association.

At the present time anyone buying a property in France with a French mortgage is entitled to mortgage tax relief (including expats), although the government have already been tightening the rules on eligibility.

The relief is available on the purchase or construction of a main home, for the first 5 years of the loan, but is capped at a maximum of €3750 for a single person, and €7500 for a couple.

Under the new proposals, those already in receipt of tax relief, or new applicants in 2010, will not be penalised as they will continue to receive the tax benefit.

In addition to mortgage tax relief, there are a range of other fiscal incentives to support house purchase, notably the use of an interest free mortage, called prêt à taux zero (PTZ), which is available to first time buyers, subject to a test of resources.

It is this interest free loan that is now to be become the primary means of supporting home ownership.

In future, however, it will have no test of resources, so (in theory at least) all first time house buyers will be eligible.

Nevertheless, the government have stated that the level of assistance will vary by income and by geographic area, so that the greatest support goes to those with low incomes and in areas where there is a shortage of accessible housing.

The level of support will also continue to vary by type of property, with priority to new property over existing homes.

The prêt à taux zero has only ever been a marginal contribution towards funding for house purchase, and this will continue to be the case.

The average level of the interest free loan is €21,800, and although it is likely this average will increase under the new proposals, anyone eligible for the loan will still need to use their own resources and/or additional mortgage finance.

It remains likely that expats would be eligible for the interest free loan, provided they were occupying rental occupation for a minimum period in France prior to taking out the loan.

In addition, children of existing expats in France buying a home would also be eligible for the interest free loan.

The total cost of the crédit d'impôt and prêt à taux zero in 2009 was €2.8 billion, of which the former accounted for €1.6 billion, so it is easy to see why the government is keen to abolish it, and target resources.

The governement state that the cost of the new prêt à taux zero universel will be €2.6 billion.

France also has a lower level of owner occupation than most other countries in Western Europe - 58%, against an average of 66% in Europe. In the UK, 70% of the population own their own home.

There is strong opposition to this idea with the ruling UMP party, so it is by no means certain that the government will be able to push the measure through in its present form.


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