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SECOND HOMES

French resort to hike taxes on second-homes by 60 percent

The French government has given local authorities in areas where there is a housing shortage the power to increase taxes on second-homes in order to fund more affordable housing for locals - and one commune has announced a 60 percent tax hike.

Published: 2 March 2023 10:05 CET
French resort to hike taxes on second-homes by 60 percent
The old harbour area of Saint-Tropez. (Photo by CLEMENT MAHOUDEAU / AFP)

The French Mediterranean glamour resort of Saint-Tropez hopes to raise €3 million a year for new local housing by increasing the taxe d’habitation on second homes by 60 percent from next year.

Mayor Sylvie Siri has seized the opportunity offered by a new government decree to increase the taxe d’habitation bills of holiday home owners who spend only part of the year in the resort town in an effort to tempt locals back into an area they had been priced out of by building new, more affordable, homes.

She told Le Parisien that the median price of a property in Saint-Tropez had reached €16,000 per square metre because of demand from cash-rich “outsiders” who wanted a summer bolthole in the sun, with the result that the town had lost 40 percent of its permanent inhabitants. 

“If it goes on like this, no young person will be able to find a place to live in Saint-Tropez”, Siri said.

The government is gradually phasing out tax d’habitation – the householders’ tax – for everyone apart from high earners, but second-home owners are still required to pay it.

This year a new tax declaration must be completed by all property owners in France – including second-home owners who live outside France – declaring whether the property is a main residence or a second home.

READ ALSO Your questions answered on French property tax declaration

 Separately to this, the government has also given local authorities in areas that are a zone tendue (an area with a housing shortage) the power to increase taxe d’habitation for second-home owners bu up to 60 percent.

Authorities in Saint-Tropez have gone for the maximum increase because of the severe shortage of affordable housing in the town. Today, only 3,850 people live in the town all year round – meaning a resort that’s overcrowded in the summer is virtually deserted in the winter.  

The estimated €3 million expected to be raise annually from 2024 via the new tax will first be used to finance new housing for local people, said the mayor, who hopes to build around 100 new homes in the area over the next five years.

Property experts have said the move is unlikely to dissuade rich second-home owners from the prestigious resort. 

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AMERICANS IN FRANCE

Americans in France: Will my tax situation change if I get French citizenship?

If you're thinking of applying for French citizenship, then you might be curious whether there will be any tax ramifications to becoming a dual national.

Published: 2 May 2024 16:44 CEST
Americans in France: Will my tax situation change if I get French citizenship?

Gaining French citizenship can have plenty of benefits for Americans living in France, from the right to vote in French elections to freedom of movement in the EU – as well as a more intangible sense of belonging in the country you now call home. 

However, Americans living abroad always have to contend with the United States’ system of citizenship-based taxation, which requires US nationals to report their global income to the IRS yearly, however long they have been out of the country.

This may result in making two tax declarations every year if they move to a country – like France – which requires yearly declarations from all residents.

As a result, Americans have to think about possible tax consequences before making decisions to move, invest, or perhaps take on a second nationality.

To help answer the question of whether there are special tax ramifications for French-American dual nationals living in France, The Local spoke with tax expert Jonathan Hadida from HadTax.

Hadida said: “There is really no impact. You still have yearly reporting requirements to both countries, and from the French side you will still continue to give you the benefits of the tax treaty”.

Key items, such as your US-based pension, would continue to be taxed in the US and not France regardless of whether or not you take on French nationality too.

READ MORE: Ask the expert: What Americans in France need to know about 401(k) and other pensions

Unfortunately, many of the limitations Americans in France experience would also remain in place. French investment options, such as the Assurance Vie, would still unwise for dual nationals, as the IRS sees them as PFICs (Passive Foreign Investment Company).

While the Assurance Vie is a great tool for being tax efficient for non-Americans, and can offer alternatives to the regimented, traditional French inheritance process, for Americans living in France (including those with dual nationality) it can lead to lengthy and complicated dealings with the IRS. 

“To the US tax authorities, you are still American first, second, third and fourth place. They don’t really care that you are also French,” Hadida said.

“The only real change to your tax situation would be giving up your American citizenship, but keeping your US citizenship in addition to French citizenship does not really change anything.”

What happens tax-wise if I renounce my American citizenship?

Renouncing US citizenship is not as simple as scheduling an appointment at a US embassy or consulate, paying the applicable fee, and declaring that one does not want to be American.

There are several factors to consider, and depending on your situation, in the long-run it might be more advantageous to hold onto your US citizenship to continue benefiting from certain parts of the US-France dual taxation treaty (PDF).

For others, keeping US citizenship might be onerous with its yearly reporting requirements, as well as the difficulty it can pose with putting money into French investment vehicles due to citizenship-based taxation and FATCA (US legislation that passed in 2010 to track money laundering). 

While renouncing your American citizenship undoubtedly pushes you further out of the reach of the IRS, you should consider that you might owe an exit tax, if you are deemed a ‘covered expatriate’. Usually, this is only required of high-net worth individuals (worth more than $2 million).

According to the US expat tax site 1040 Abroad, this also includes people who failed to comply with tax obligations in the five years preceding their renouncement, as well as people who had “an average annual net income tax liability exceeding a specified threshold” (as of 2022, this number was set to $178,000).

People renouncing US citizenship can also be subject to a special inheritance tax on gifts made to US citizens or residents, following their renunciation. 

READ MORE: How to renounce American citizenship in France – and why you might want to

You should also think about your US-based investments.

“You would no longer benefit from the tax treaty in the same way if you give up your US citizenship. For example, Article 24 of the treaty covers investment income, making it taxable in the US and giving you a deemed credit in France.

You would lose this benefit if you renounce, and this could make a big difference if the taxation level is lower in the US, as it often is with dividends or capital gains.

“Your IRA and pension plans will continue to be taxed in the US because this is based on where the pension is earned, not nationality, but you might have to start filing a non-resident tax return to the US after renouncing citizenship,” Hadida said.

The tax expert said that renouncing citizenship should be decided on a case by case basis.

“Every situation is different, and for some people it might not make sense to give up certain benefits from the US-France tax treaty. You should speak with a financial advisor before deciding”, he said.

READ MORE: Divorce, stress and fines: How citizenship-based taxation affects Americans in France

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