European courts are about to take the French government to task over an illegal tax that over 200,000 British second home owners were ordered to pay.
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British homeowners caught in the tax trap stand to gain from a £400 million compensation pot if the EU rules in their favour.
European Court of Justice’s Advocate General Eleanor Sharpston has decided the tax is illegal because “a person exercising an activity in one member state is only subject to social security regulation of that member state”.
Effectively, the rule means that EU citizens are only subject to making social security contributions in one state, so the French levy is against EU law.
Sharpston was referring to a measure from the French government that added more than 15% to the tax bills of second home owners who disposed of property in France in 2012.
The French claimed the tax levelled out taxes between French property owners and those from other EU states.
However, because the tax was a social charge, the amount could not be offset against income tax or capital gains tax under double taxation treaties in other countries.
After an outcry, the European Court took up the argument and although a formal ruling is still awaited, the indications are that France has lost the case and must pay compensation to tens of thousands of expats and second homers.
The French government has been trying to head off the compensation claims with new laws in a race to beat the publication of the ruling, which is expected before the end of 2014.
Lawyers are urging anyone who sold a home in France in 2012 or 2013 to make a claim for compensation before the end of this year or they could miss out on a refund.
The social charge saw income tax on rents soar from 20% to 35.5% and capital gains tax on disposals leap from 19% to 34.5%.
The French have other taxes on second homes in the pipeline in a bid to bring properties in part-time use on to the market for families looking for somewhere to live.
Town halls in some areas will gain special powers to increase local property taxes to penalise homeowners who let their apartments or villas stand empty for most of the year.
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