On the 8th September 2011, the French parliament voted a new version for Capital Gains Tax on French properties (it isn’t definitive yet because it has to be approved by the second assembly: the sénat). This new version will be applicable on the sale of the second home and those who own a French property which isn’t used as main residence. This new version will be applied to notaries’ transactions done after the 1st February 2012.
Currently, when you sell a property in France, there is 10% abatement per year after 5 years of ownership. Thus after 15 years of ownership, there is no CGT payable.

The new CGT version consists in:
- 2% abatement per year after 5 years of ownership until 17 years of ownership
- 4% abatement per year during years 18 to 24
- 8% abatement per year during years 25 to 30
- No CGT after 30 years

In another way, the tax rate for non main-residences will increase from 31.3% to 32.5% for French residents and will remain at 19% for non-residents.

As an example always give a better idea of the consequences, we compare the two CGT’s payable to a French property purchased at €100,000 with a price appreciation of 2% per year.

As you can notice, the impact on the net profit isn’t very important when you look at the net profit.
Another possibility to avoid paying the new CGT would be to turn the property as your main residence for a few years (subject to the appreciation of the French tax office) with a perspective of selling it.

What will happen next?

In the short term:
- French property owners who possessed a property for more than 15 years and who were considering to sell it will try to do it before the end of October to avoid paying the new CGT (it usually takes 3 months between the sale agreement and the signature with the notaire)
- It will Increase the offer with numerous properties arriving on the market
- Prices are expected to decrease until the 31st October 2011

In the long term:
- Properties which haven’t been sold before the deadline (notaire signature before 1st February 2012) will be taken off the market and owners will wait a few years to have more abatement.
- People who don’t have to sell will be waiting longer and less incline to negotiate the asking price
- Decrease of the number of properties on the market
- Prices will increase and get back to August 2011 levels

What to do?
September, October and the beginning of November are the best time to buy a French property. Numerous owners will sell their properties with a lower price to make a notarised transaction before the 1st February 2012.
Please note you need to keep in mind the deadline as you have to sign the “compromis de vente” 3 or 2 months before the 1st February 2012 (it is due to the verifications done by the notaire which can take some time). As you can also guess notary offices will be very busy in January 2012 but they will do their best to please everybody.

Happy hunting!