Big problems ahead?

[Debra]

[quote user="Frederick"]I take it you did not watch the video and heard what was said by the French President and the comments of David Cameron  on  the Presidents statement that  holiday home owners are not being taxed more then  ?  

[/quote]They are not being taxed more if they are simply holiday home owners.  Sarkozy's intention was to tax them more but this wasn't allowed because it was discriminatory.  Hollande isn't being discriminatory.  As Norman has repeatedly pointed out, he has decided that non-resident holiday home owners should pay the same taxes on rental income or capital gains as do resident holiday home owners.  That is not discriminatory.  Nor is it imposing a tax on holiday home owners - only on holiday home landlords' income or on holiday home sellers' capital gains.

[idun]

Debra said: 

As Norman has repeatedly pointed out, he has decided that non-resident holiday home owners should pay the same taxes on rental income or capital gains as do resident holiday home owners. 

 

Sorry can someone tell me exactly what is going on?  As  non residents with french declarable income are always treat differently to residents with regards to the impots they pay. They pay more, much more.

 

IF this is correct then non residents should always be treat as residents are, where taxes are concerned, and they are not, simply, non residents are discriminated against. 

 

And non resident second home owners pay more in other taxes ie Taxe d'habitation too, is this discrimination?

 

 

 

[NormanH]

idun wrote

" non residents with french declarable income are always treat

differently to residents with regards to the impots they pay. They pay

more, much more'

I think we may be at cross purposes.

The recent posts on this thread have been about CSG on rental income and capital gains on sales of second homes not about the  impôts of non-residents in general, which I as a resident don't know anything about, and haven't commented on.

In the case of the CSG it was not previously payable by non-residents.

[parsnips]

[quote user="Debra"][quote user="Pickles"][quote user="Sprogster"]Unless I am missing something the major deterrent factor with the proposals for non resident owners is that they will not be able to get double tax relief, as the additional charges will not qualify as tax under double tax agreements.[/quote]

As I posted earlier, the DTT specifically categorises CSG and CRDS as "taxes" which can therefore be offset in the UK. The problem arises if the UK resident is only liable for the lower rate of UK tax, in which case the extra paid in France cannot be offset.

[/quote]Not true - CSG and CRDS are not included as French Tax which can be offset in the UK and in fact are specifically excluded when items in the list from article 2 are quoted in article 24.

[/quote]

Hi,

     I think the CSG etc. are covered by para 2 of article 2 which is a "catch-all" clause.

[Pickles]

[quote user="parsnips"][quote user="Debra"][quote user="Pickles"][quote user="Sprogster"]Unless I am missing something the major deterrent factor with the proposals for non resident owners is that they will not be able to get double tax relief, as the additional charges will not qualify as tax under double tax agreements.[/quote]

As I posted earlier, the DTT specifically categorises CSG and CRDS as "taxes" which can therefore be offset in the UK. The problem arises if the UK resident is only liable for the lower rate of UK tax, in which case the extra paid in France cannot be offset.

[/quote]Not true - CSG and CRDS are not included as French Tax which can be offset in the UK and in fact are specifically excluded when items in the list from article 2 are quoted in article 24.

[/quote]

Hi,

     I think the CSG etc. are covered by para 2 of article 2 which is a "catch-all" clause.

[/quote]

There is a precedent here: the Irish Govt introduced last year a "universal social charge" which for non-residents is being applied to all income, including deposit interest. This is being treated as an offsettable income tax by HMRC.

[Debra]

[quote user="Pickles"][quote user="parsnips"][quote user="Debra"][quote user="Pickles"][quote user="Sprogster"]Unless I am missing something the major deterrent factor with the proposals for non resident owners is that they will not be able to get double tax relief, as the additional charges will not qualify as tax under double tax agreements.[/quote]

As I posted earlier, the DTT specifically categorises CSG and CRDS as "taxes" which can therefore be offset in the UK. The problem arises if the UK resident is only liable for the lower rate of UK tax, in which case the extra paid in France cannot be offset.

[/quote]Not true - CSG and CRDS are not included as French Tax which can be offset in the UK and in fact are specifically excluded when items in the list from article 2 are quoted in article 24.

[/quote]

Hi,

     I think the CSG etc. are covered by para 2 of article 2 which is a "catch-all" clause.

[/quote]

There is a precedent here: the Irish Govt introduced last year a "universal social charge" which for non-residents is being applied to all income, including deposit interest. This is being treated as an offsettable income tax by HMRC.

[/quote]

Does the Irish double taxation clause specifically exclude it like the French/UK one excludes CSG and CRDS from being included in the UK credit back of 'French Tax'?  See below.

[quote]

ARTICLE 2

TAXES COVERED

1. The taxes which are the subject of this Convention are:

(a) in the case of the United Kingdom:

(i) the income tax;

(ii) the corporation tax;

(iii) the capital gains tax;

(hereinafter referred to as “United Kingdom tax”);

(b) in the case of France, all taxes imposed on behalf of the State or of its local authorities irrespective of the manner in which they are levied on total income, or on elements of income, including taxes on gains from the alienation of movable or immovable property, taxes on the total amount of wages or salaries paid by enterprises, as well as taxes on capital appreciation; those taxes are in particular:

(i) the income tax (l'impôt sur le revenu);

(ii) the corporation tax (l'impôt sur les sociétés);

(iii) the social contribution on corporation tax (la contribution sociale sur l’impôt sur les sociétés);

(iv) the tax on salaries (la taxe sur les salaires);

(v) the “contributions sociales généralisées”;

(vi) the “contributions pour le remboursement de la dette sociale”;

(hereinafter referred to as “French tax”).

ARTICLE 24

ELIMINATION OF DOUBLE TAXATION

1. Subject to the provisions of the law of the United Kingdom regarding the allowance as a credit against United Kingdom tax of tax payable in a territory outside the United Kingdom (which shall not affect the general principle hereof):

(a) French tax payable under the laws of France and in accordance with this Convention, whether directly or by deduction, on profits, income or chargeable gains from sources within France (excluding in the case of a dividend, tax payable in respect of the profits out of which the dividend is paid) shall be allowed as a credit against any United Kingdom tax computed by reference to the same profits, income or chargeable gains by reference to which French tax is computed;

(b) in the case of a dividend paid by a company which is a resident of France to a company which is a resident of the United Kingdom and which controls directly or indirectly at least 10 per cent of the voting power in the company paying the dividend, the credit shall take into account (in addition to any French tax for which credit may be allowed under the provisions of sub-paragraph (a)) the French tax payable by the company in respect of the profits out of which such dividend is paid.

2. For the purposes of paragraph 1:

(a) profits, income and capital gains owned by a resident of the United Kingdom which may be taxed in France in accordance with the other Articles of this Convention (except capital gains which may be taxed in accordance with paragraph 6 of Article 14) shall be deemed to arise from sources in France;

(b) capital gains from sources neither in France nor the United Kingdom which may be taxed in the United Kingdom in

accordance with paragraph 6 of Article 14 shall be deemed to arise from sources in France;

(c) the taxes referred to in clauses (i) to (iv) of subparagraph (b) of paragraph 1 of Article 2 and, in respect of the taxes mentioned in those clauses, in paragraph 2 of Article 2, shall be considered French tax[/quote]ie not clause (v) CSG or (vi) CRDS

[parsnips]

Hi,

    I thought it time to break the quotes "chain". 

The quote above does not show that the CSG and CRDS are excluded --they are just not mentioned.

To be unambiguously excluded, words to that effect should be included in the treaty.  

We are dealing with legal language here and it is already evident that this treaty was not very well drafted (hence the ongoing shambles of the CSG on UK rents saga).

 However this clause is specific  ;

(b) in the case of France, all taxes imposed on behalf of the State or

of its local authorities irrespective of the manner in which they are

levied on total income, or on elements of income, including taxes on

gains from the alienation of movable or immovable property, taxes on the

total amount of wages or salaries paid by enterprises, as well as taxes

on capital appreciation; those taxes are in particular:

(i) the income tax (l'impôt sur le revenu);

(ii) the corporation tax (l'impôt sur les sociétés);

(iii) the social contribution on corporation tax (la contribution sociale sur l’impôt sur les sociétés);

(iv) the tax on salaries (la taxe sur les salaires);

(v) the “contributions sociales généralisées”;

(vi) the “contributions pour le remboursement de la dette sociale”;

(hereinafter referred to as “French tax”)

I believe (having dealt in a past life with legislation) that this clause , which appears in the second, defining, article of the treaty is quite unambiguous and takes precedent over the omission of those taxes much later in this badly drafted treaty.

[Debra]

It would be nice to think that your optimism turns out to be justified, Parsnips, but I am doubtful.  It seems quite clear to me that clauses (i) to (vi) are listed as French taxes and are to be credited back by the French on income which is subject to UK tax, whereas when UK credits of French Tax against UK tax are discussed, only clauses (i) to (iv) are listed - leaving clause (v) CSG and clause (vi) CRDS conspicuously missing. 

It seems very doubtful that the HRMC would decide to be magnaminous and credit CSG agains UK tax, losing UK tax revenue in the process, when they don't have to according to the treaty.  I guess we'll see if you are correct and they really are that generous, eventually.....(will it take as long as it seems to be taking the French tax office to back down (maybe) on the definition of 'subject to tax' that I pointed out might be a problem last October?)

[parsnips]

[quote user="Debra"]It would be nice to think that your optimism turns out to be justified, Parsnips, but I am doubtful.  It seems quite clear to me that clauses (i) to (vi) are listed as French taxes and are to be credited back by the French on income which is subject to UK tax, whereas when UK credits of French Tax against UK tax are discussed, only clauses (i) to (iv) are listed - leaving clause (v) CSG and clause (vi) CRDS conspicuously missing. 

It seems very doubtful that the HRMC would decide to be magnaminous and credit CSG agains UK tax, losing UK tax revenue in the process, when they don't have to according to the treaty.  I guess we'll see if you are correct and they really are that generous, eventually.....(will it take as long as it seems to be taking the French tax office to back down (maybe) on the definition of 'subject to tax' that I pointed out might be a problem last October?)

[/quote]

Hi,

     We'll soon find out who is right on this one , as the deputies yesterday passed the measure applying the CRDS and CSG to non-residents income from french real estate,( sales and rents) .    Hopefully , someone affected by this will let us know in the coming months how the UK treats the CSG paid on their rents.

[NormanH]

That rather puts paid to the Telegraph non-article about Hollande telling Cameron it wouldn't happen !

[Pickles]

[quote user="NormanH"]That rather puts paid to the Telegraph non-article about Hollande telling Cameron it wouldn't happen !

[/quote]

Indeed: no-one else at that press conference seems to have interpreted Hollande's words in the way that the getelarph did.

[Sprogster]

I would have thought that non EU residents will need to think very carefully now if they are considering buying a second home in France, with an effective CGT rate of just under 49%, which is probably the highest in the world!!!! OK, you can keep the property for thirty years, but in reality most second home owners sell within 10 years.

It will be interesting to see if they try and apply the higher rate to EU citizens who are currently resident outside the EU, something that is already being challenged through the EU courts in regards to another area of taxation. 

The only saving grace is that future gains on French property are probably unlikely for the forseeable future, with a loss more likely!

American second home owners in France will be doing their nut, as their US liability is only 15%!!

[Debra]

I'm not sure, Sprogster - there are a lot of bargains to be had at the moment, which means possible profits - and 50% of a profit is still a profit.

[Sprogster]

Debra, in the absence of any indexation allowance to enable one to offset inflation against any gain, a profit is not a profit that just covers inflation over the period you owned the house and taxing the gain that just covers inflation at 49% is therefore outrageous.  Hence why CGT rates are usually much lower than income tax rates. 

In addition in France you need to sell your house for around 30% more than you paid for it to cover your original purchase and sale costs.

There may be bargains around, but the Notaires associations, French banks and Immoblier organisations of France are all forecasting a fairly substantive decline in French house prices this year, with the possible exception of central Paris and certain high end areas of the Cote D'Azur. Don't forget that France now has a socialist government that would welcome falling house prices, making them more affordable to the average person.

My own view is that if I get my money back when I eventually sell my house, then I will be happy. In the meantime the enjoyment of using it is sufficient return on my investment which is probably a sensible philosophy for most second home owners. (I am sure one of the forum members who has moved to the USA and recently sold his French house after two years trying would have been ecstatic just to get his original investment back!)

[NormanH]

Don't forget that the phenomenon of high house price inflation has only been very recent in France. In the mid 90s prices were much lower because they had traditionally just crept up, and a high proportion of people rented.

Depuis 1965, les prix de logements en France ont fait preuve d'une relative stabilité par rapport au revenu par ménage. Jacques Friggit, chargé de mission au Conseil général de l'environnement et du développement durable, a observé que les prix des logements étaient reliés à la croissance des revenus des ménages et qu'ils oscillaient avec une marge de 10 % autour d'une tendance longue (tunnel de Friggit). Les prix en France ont été confinés dans le tunnel pendant plus de 37 ans, jusqu'en 2002.

http://fr.wikipedia.org/wiki/Fichier:Courbe_de_Friggit.jpg

Perhaps we are seeing a correction in the market.

[idun]

[quote user="NormanH"]Don't forget that the phenomenon of high house price inflation has only been very recent in France. In the mid 90s prices were much lower because they had traditionally just crept up, and a high proportion of people rented.


Depuis 1965, les prix de logements en France ont fait preuve d'une relative stabilité par rapport au revenu par ménage. Jacques Friggit, chargé de mission au Conseil général de l'environnement et du développement durable, a observé que les prix des logements étaient reliés à la croissance des revenus des ménages et qu'ils oscillaient avec une marge de 10 % autour d'une tendance longue (tunnel de Friggit). Les prix en France ont été confinés dans le tunnel pendant plus de 37 ans, jusqu'en 2002.
http://fr.wikipedia.org/wiki/Fichier:Courbe_de_Friggit.jpg

Perhaps we are seeing a correction in the market.
[/quote]

 

How true that is NH. And when I calculated our house had still only kept up with inflation when we sold it, but........

I keep wondering how and why house prices increased as they did in France from 2002, as far as I am aware, one had the same paper chase to get loans.

And now I am wondering........... pre euro, ALL prices were pretty stable, we plodded along and british friends would get so excited about 'cheap' France, but the truth is that the prices reflected the wages. Then the euro and we had, for the first time since the early 80's, very noticeable and disagreeable inflation, salaries, did not follow these price rises and from what friends tell me, still are not!

So is it the 'euro' effect????? on inflation and house prices?????

[Aly]

The French FM has asked for the ESM and ESFS funds to be increased. I think this is now the beginning of the end for the Euro zone.

I think the French are now panicking that if Spain goes its France next. Why else would they take on such huge debts.They are the second biggest contributors to these funds. Please don't say its solidarity! More like self preservation.

The IMF has refused to give any more money to Greece as they are not complying with the troikas rules.If Greece leaves the Euro France and Germany will have to write off the lions share of 80 billion.  Even little Cyprus now has a debt of several billion with its population of 750.000.Countries like Spain and Cyprus will be borrowing funds at 6 - 7 percent to fund these bodies so that they in turn can loan money at lower rates.  Madness!!! It will be interesting to see what the Finns, Dutch and Germans and some of the other states do.

[idun]

[quote user="Debra"]I'm not sure, Sprogster - there are a lot of bargains to be had at the moment, which means possible profits - and 50% of a profit is still a profit.
[/quote]

 

Bargains? no, probably already way too expensive, especially in some regions of France. I do believe that if the housing market goes mad again, I will feel profoundly disappointed and upset and I do hope that it does not do it again in my lifetime.

 

[Debra]

[quote user="idun"]

[quote user="Debra"]I'm not sure, Sprogster - there are a lot of bargains to be had at the moment, which means possible profits - and 50% of a profit is still a profit.

[/quote]Bargains? no, probably already way too expensive, especially in some regions of France.[/quote]Not near me, I don't think, but I suppose the best approach is to only buy a bargain if you don't mind being stuck with it!