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Money Matters and Legal / In Law

Mayors will have Discretion to Increase Annual Property Taxes on Second Home Owners

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The National Assembly has just voted in a measure that will allow mayors to increase the taxe d’habitation on second homes by up to 60% of their current levels, starting in 2017. The aim is to encourage owners to sell or rent them out on a permanent basis, especially in regions where supply is struggling to meet demand. 

The optional surcharge on the taxe d’habitation on second homes was first introduced in 2014, allowing mayors to add 20% to the then base amount. This annual tax is intended to be paid by the occupants of the property as of January 1st of that year; but if there is no long-term renter then the tax is paid by the owner. The tax is the same regardless if the owners are French residents or non-residents.

Mayors in ‘zones with high property tension’ – a term used to describe areas that lack adequate supply – have been given the discretion to increase this tax by up to 60%. The base rate of tax depends on the municipality, but it is worked out based on rental value, generally 1.2%-1.7% of this amount. Those with holiday homes or unused second properties are the target of the discretionary tax hike.

Pascal Cherki, deputy of the Assembly and mayor of the 14th arrondissement of Paris, initially proposed an upper level of 80%. He and his fellow mayors are those most in favour of the tax. There are an estimated 92,000 units of unoccupied property in Paris, a reality that pushes up rents for available properties.

An increase has been on the horizon ever since the principle was first voted on in February. The initial fixed 20% rate is not high enough in some places (i.e. Paris) and too high in others, noted the seven signatories to the amendment, which included Paris mayor Anne Hidalgo.

The new 5% to 60% option will give flexibility to city or arrondissement mayors, and might increase how many of them implement the measure. As a baseline, in the year since the 20% surcharge was introduced, only 98 out of 1,100 potential municipalities had implemented it, a mere 8.5%.

Outside of Paris, the regions with high ‘property tension’ include big metropolises like Bordeaux, Lyon and Marseille, and holiday destinations like Ajaccio and Biarritz. A full list of the municipalities where the surcharge has been made available can be found here.

The assembly also voted to limit the increase in basic property tax rates – the taxe fonciere and taxe d’habitation – to 0.4% for 2017.

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