The government is proposing to grant a reduction of 20% in capital gains tax on second home sales next year.

As we indicated in our last Newsletter, one of the measures included in the draft budget for 2013 is a temporary reduction in liability to capital gains tax on the sale of second homes and rental properties.

The aim of this 'choc immobilière' is to give a boost to the flagging housing market by increasing the number of properties for sale.

For this reason the concession will apply on an exceptional basis only for the calendar year 2013, for sales completed in the year.

Although the measure has yet to complete its passage through the French Parliament, it is proposed that sale contracts signed in 2012, but which are not completed until 2013, will be eligible for the reduction in the tax.

However, the tax break is not quite as generous as the headline figure would suggest, for it will apply uniquely in relation to the rate of capital gains tax (impots sur les plus-values) of 19%.

The social charges (prélèvements sociaux) will continue to be charged at the rate of 15.5% on the whole of the net gain, after allowances.

This means the real level of the discount is not 20%, but 11%.

In both cases, the tax will apply after deduction of any eligible costs and allowance for duration of ownership.