France To Review Property Tax Breaks

by Ulrika Lomas, Tax-News.com, Brussels

02 April 2010

Determined to reduce the number of tax breaks or “niches fiscales” available in France, the government has announced its intention to revise the tax credit on loan interest accorded to individuals purchasing a main residence.

Designed to facilitate home ownership for the “middle classes,” and championed by French President Nicolas Sarkozy during his election campaign in 2007, when he declared that anyone in France could become a property owner, the measure is now under threat due to significantly rising costs. According to Gilles Carrez, parliamentary budget rapporteur, the measure cost the government around EUR280m in 2008, EUR1bn in 2009, EUR1.5bn in 2010 and is expected to cost in the region of EUR3bn by 2013.

French Secretary of State responsible for housing, Benoist Apparu, has confirmed plans to present a draft reform of existing measures by the autumn. Rather than merely introduce “cosmetic” changes, Apparu has indicated plans to start from scratch in order to create a simple and efficient tool, designed to benefit the middle and lower middle classes, while also ensuring that the measure does not destabilize the property market in France.

Introduced within the framework of the TEPA law (work, employment and purchasing power), the current measure provides that borrowers purchasing a main residence, whether they are first-time buyers or not, benefit from a tax reduction (or tax credit in the case of non-taxpayers) equivalent to 40% of mortgage interest paid in the first year and 20% for the subsequent four years, up to a limit of EUR3,750 paid interest for an individual, and EUR7,500 for couples, increased by EUR500 for each dependent.

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