After weeks of speculation, we can all breathe a sigh of relief: the main home is to remain exempt from capital gains tax.

This is something of a volte face for the President, for it was actually his idea, as part of the proposed more general reform of the taxation of personal wealth - la réforme de la fiscalité du patrimoine.

It also was one that quickly became a favourite with numerous other key government and parliamentary figures, notably Christine Lagarde the Finance Minister.

Jean Arthuis, Chairman of the Senate (Upper House) Finance Committee, also expressed his support for the idea, as well as Gilles Carrez, rapporteur of the National Assembly (Lower House) Budget Committee.

So the idea had some powerful friends, and just what has now persuaded the President to change his mind is not entirely clear, but the reasons appear to be political.

In explaining his decision on France’s leading television station TF1, the President stated that he was motivated by the desire for home ownership amongst the population and the security that it gave a family.

Why, therefore, he flew this particular balloon in the first place is a mystery, but it is not unusual for him to sound off publicly with ideas that have not been properly thought through.

Second Homes?

Although the main home seems to have escaped any additional taxation, there remains a question mark over additional taxation on the sale of second homes.

At the moment, although second homes are liable to capital gains tax, there is a reduced liability based on length of ownership, with complete exemption after 15 years of ownership.

With the overall review that is currently being undertaken by the government, it may well be that there will be some toughening of the rules on second homes.

The other alternative being canvassed by François Baroin, the Minister of Budget, is a less ambitious one to simply to raise the threshold of exemption for liability to wealth tax.

Such a proposal does seem dangerously maladroit, for it does make it rather obvious that the reform debate is really about little more than the abolition or relaxation of the wealth tax - l’impôt de solidarité sur la fortune (ISF) - a tax that only affects around five hundred thousand inhabitants.

The question that would then arise is just what other changes to the tax system would replace the loss of revenue from a reduction in the wealth tax.

The favourite option being canvassed is to end the bouclier fiscal, a complicated rule that limits to 50% the overall tax rate imposed on taxpayers.

The creation of a new higher top rate of income tax is also being discussed, although this does not seem to have the support of President Sarkozy.

We are being told that all will be revealed in the next few weeks.