A Thanksgiving Special…
Volume XIX, Issue 45
It’s the first time we’ve issued a French Property Insider on Thanksgiving Day. That’s because we promise you 50 issues a year and skipped one in early October when we were gallivanting around Provence with our tour group! So, while you’re gulping down turkey and pumpkin pie, you can be reading all about property in France.
Yesterday we wrote about our newest listing: La Fleur de Poitou. It’s a one-bedroom apartment in the heart of the Haute Marais, 3rd Arrondissement very close to where I have lived for 25 years. Featured on HGTV’s House Hunters International, “A Taste For Paris,” this is 33.23 square meters (357 square feet) of pure and royal heaven in a centuries-old building (dating back to about 1850). It won’t be on the market long, so don’t hesitate to learn more about it. Visit our website to discover more.
For Thanksgiving Dinner this year, instead of making my own French turkey (which I’ve done lots of times), I’m heading to Breakfast in America #2, the American Diner on rue Malher in the Marais, to celebrate with close friends. It’s located directly across the street from the entrance of “Les Balcons Saint-Paul,” one of our newest Fractional Ownership properties. The apartment is undergoing a complete facelift, even though is was perfectly beautiful before…we’re making it even more stunning, at the hands of our illustrious Interior Designer, Martine di Mattéo.
Usage begins in January, so the team is working away non-stop to complete it. There are only a few shares left, so if you are at all interested, don’t hesitate to visit our website, and/or contact us now.
TAX OR NO TAX ON PRIMARY RESIDENCES?
In France, your primary residence is currently not subject to capital gains taxes when you sell it. I’ve been grappling with this issue on a personal basis as my Paris apartment has always been my primary residence, with Nice in second place. This year, I realized that I will likely never sell the Paris property (my daughter has claimed a stake on it!), but more likely to sell the Nice property to purchase another one, but larger. Therefore, this coming year, I will officially declare the Nice property as my primary residence, and in fact, 45 percent of 2021 was spent in Nice, so it can easily qualify as true and easy to prove.
With the rise of telecommuting and dual residency, this definition of primary vs secondary, which is subject to interpretation, could easily give rise to a new tax dispute here in France. The Taxe d’Habitation on secondary residences is already rising, with some mayors deciding to apply a 60 percent surcharge to them.
“Bi-residence, semi-premium residence”…these terms, not considered a few months ago, have become part of our spoken language since the first confinement. They designate a new hybrid lifestyle, divided between a residence, often urban and occupied a few days a week and another, closer to nature, to telework the rest of the week. Not really a second home, since it is occupied half-time and not just for weekends and school holidays. My Nice property is exactly that if not more.
For the French who can afford it, this new lifestyle raises a new question: where to domicile their main residence?
I’ve been complaining for years that the authorities have overlooked the need for this new transient lifestyle, as evidenced by Airbnb’s popularity and the desire for second homes all over the world, but they continue to fight back against a tidal wave they can no longer keep at bay, particularly in the arena of short-term rentals!
Until now, only some of our clients, most often at the time of retirement and a change of life, have asked themselves this question. Today, we see young executives and also families sharing their lives between two places…or more.
This is the case of employees who telework several days a week, or for freelancers or entrepreneurs who share their lives between two cities and as many habitats. And they have good reason to question the tax laws because their choice can have a major impact on the household’s finances. If the housing tax disappears for the main residence, it remains for secondary residences. And it is expected to even soar this coming year, with some mayors deciding to apply large surtaxes.
In the case of a resale, if the main home is exempt, the secondary residence is subject to taxation on capital gains. That’s where my main issue lies between Paris and Nice. As the value of my properties have increased, particularly in Paris, the question of capital gains tax becomes much more important than the insignificant amount of Taxe d’Habitation. Calculated by subtracting the amount of the sale price from the initial purchase price of a second home, its rate decreases over the years but remains high in the event of resale within thirty years of acquisition.
The notion of principal residence is the place where one lives more than six months a year, and this applies to income tax residency as well. It may be
common sense, but now this is open to interpretation in the era of telecommuting and timesharing. Especially since the definition by the tax administration is not explicit: “Sont considérés comme résidences principales, les immeubles ou parties d’immeubles constituant la résidence habituelle et effective dupropriétaire,” states the Bulletin Officiel des Finances Publiques (BOFIP).
In other words, the usual residence must be understood to be the place where the taxpayer resides during the major part of the year, and that a temporary use of a dwelling cannot be cannot be considered sufficient for the dwelling to have the character of a residence”.
It’s not easy for the tax authorities to see the pathway clearly. Especially since, when asked about these definitions, they must assess each situation on a case-by-case basis. When there is doubt, it is up to the taxpayer to prove by all means, that it is indeed his or her principal residence. Concretely, this can take the form of electricity bills, work done, anything that can demonstrate that one has lived on the spot a large part of the year, even the use of social networks.
Note that if you can, as a taxpayer, post photos of our activity on social networks to prove the occupation of your main residence more than six months a year, the taxman cannot use it. Beware to the clever ones who would change their secondary residence into a primary one just before selling it! You must live several months, usually at least one year, to justify a case of force majeure, a death or a professional transfer in order not to be subject to the tax adjustment.
The French authorities are telling us that we can expect more tax adjustments in the coming years, especially if the tax exemption on principal residences is maintained or to allow local authorities to extend the capital gains tax to primary residences before giving it up entirely.
I better act fast!
A bientôt and Happy Thanksgiving to all
The Adrian Leeds Group®
P.S. Fractional ownership is a perfect way of combining lifestyle with investments! To learn more, visit our website and see all of our Fractional Ownership properties currently on the market!