France seeks to boost second home sales by cutting capital gains tax

French MPs have voted to lower capital gains tax on second homes in 2027 in a bid to boost the property market.

The aim is to lighten taxation for people selling furnished second homes to buyers who will live in the property as their main home or rent them out to someone else as their home.

The move has been welcomed by commentators in the property sector as beneficial to people wanting to sell furnished holiday let properties, especially as the budget contained a separate measure which would see income tax bills rise for people renting out property under the réel taxation regime. 

Note, however, that the latter measure has for now been removed from the draft bill by MPs.

The lower tax proposal, made as an amendment by an MP for President Macron’s centrist group, must also be approved by senators.

As it stands it also requires several conditions to be met.

What is proposed

The proposal would see qualifying homes benefit from full exemption from capital gains tax after 17 full years of ownership instead of 22 years. Social charges would remain payable until 30 years of ownership.

To achieve this, it would increase the percentage of the allowance for length of ownership that is applied to a capital gain before it is taxed.

For example, instead of 6% for each completed year of ownership from the sixth to the 21st, the allowance would be 8% for each completed year from the sixth to 16th. Instead of 4% for the 22nd year, it would be 12% for the 17th year.

What are the conditions?

The property should be sold furnished and it should have been used for at least a year prior to the sale as a second home for the seller or their family, or for holiday rental to tourists (either regular or occasional).

The sale must be to someone who will use it as their main home or rent it out as someone’s main home, at least until January 1 of the third year following the sale. If the buyer does not respect this, they would face a fine of 5% of the sale price. In case of renting out the rental must start within six months of the sale.

For example, a holiday home that has been owned for 14 years when it is sold would, under the current rules, benefit from a 54% allowance for length of ownership. Under the new rules, this would rise to 72%. If it was bought for €150,000 and sold for €190,000 there is a €40,000 capital gain, reduced to €11,200 as opposed to €18,400. Tax at 19% is €2,128 instead of €3,496 (a saving of €1,368).

In presenting the amendment, MP Daniel Labaronne (Indre-et-Loire) said that “faced with a shortage of homes in under-pressure areas, it is essential to facilitate access to affordable homes for as many people as possible, across the whole of the territory”.

He said the current 22-year limit for total exemption tends to encourage people to keep their homes for a long time, thus the proposed reduction would “boost the property market and encourage people to free up homes held for many years”.

A reduction to 17 years, meanwhile, remained sufficiently long to avoid many people taking advantage of the measure for property speculation, he said.

What will happen now?

The measure was approved by MPs during debate on the draft budget, but it must still pass further parliamentary stages.

If MPs reject the revenue section of the budget as a whole, the amendments they previously approved would be lost, and the original version of the budget would be sent to the Senate for consideration.

In case of delays, there is also the risk that the government pushes the budget through via the article 49.3 process, in which case the amendment may also be lost.