THE FRENCH AUSTERITY PLAN AND ITS IMPACT ON THE PROPERTY MARKET

·         Income tax: in 2012 and 2013 the income tax bands will not be adjusted in order to take inflation into consideration. This will mean that certain tax payers will automatically transfer into a higher tax band.

Opinion: Given that wage inflation is generally depressed this is likely to affect mainly certain higher earners. The rates and allowances remain unchanged which is significant for lower-income households.

·         VAT: to be increased from 5.5% to 7% (hostelry, restaurants, work on homes, books, cinema, domestic services...). Only food, energy, and equipment and services for handicapped people are unaffected by this increase.

Opinion: The raising of the rate that applies to work done on homes will evidently increase costs for homeowners funding renovations but one positive is that the reduced rate has been retained - there is no indication that it will be taken to the usual level of VAT which means that funding work to one's home will remain affordable, particularly as in many areas it is possible to obtain keenly priced quotes from trades-people.

·         Wealth tax: the wealth tax bands will also not be increased automatically to take inflation into consideration, the same also applying to gift and inheritance tax.

Opinion: The ceiling above which wealth tax becomes payable has recently been increased from 800,000 Euros to 1.3 million Euros which will exonerate a considerable number of taxpayers from this tax in any event. As for gift and inheritance tax, reduced property values in many areas should mitigate the impact of this temporary measure, particularly for more modest households.

·         Prélèvement Forfaitaire Libératoire: this tax, known as PFL, is applied to interest and dividends. It is a tax at source exempting the taxpayer from declaring the income on their income tax return. The rate will be increased from 19% to 24%. To this amount it is necessary to add social security contributions of 13.5% leading to an overall taxation on such income of 37.5%.

Opinion: Given that the property market is a buyer's market at present, a well-negotiated investment in real estate could be made more attractive by such a measure as capital gains tax on property will be lower, notwithstanding the fact that a property investment is viewed as more solid due to the relative stability of the market.

·         Scellier: the tax-saving measures for investment in new-build rental property, known as Scellier, will be removed at the end of 2012.

Opinion: The impact of this is difficult to evaluate but will be considerable. In the immediate term it is likely to make such investments more attractive as people seek to benefit from the provisions before they become redundant.

·         Zero-rate loans: these loans, known as Prêt à Taux Zéro (PTZ), apply to first-time buyers subject to certain criteria in terms of revenue and energy performance of the investment. These loans will in due course only be available for those purchasing new-build property.

Opinion: Such loans do have an impact in terms of encouraging first-time buyers to leave rental and invest. Re-centering on new-build property could help in absorbing some of the investment that will inevitably be lost due to the removal of the Scellier measures. If more property is built for the first-time buyer rather than for the investor then maybe the impact on the first-time buyer's market, which ultimately seeps through to the rest of the market, will be positive with more property available and help with financing reinforced, albeit refocused on a certain sector of the property market.