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French Tax Hike Could Hurt Junior ISA Contributions

05/07/12/A. Velasco

Posted on 05/07/12

Many of us dream of going on vacation to somewhere sunny and warm, and despite the current economic situation many of us still manage to do so. Some of us even like it so much, they purchase second homes in other countries, to get away from Britain’s gloom without being too restricted.

The most popular countries, both for travel and for owning property abroad, are Spain and France. When it comes to Spain, news have been positive lately for property owners, as a recent EU court case came out in favour of foreigners. Previously, the Spanish government had charged a much higher inheritance tax on properties from non-citizens compared to Spanish residents, which has now been ruled as wrong. Many Britons who have inherited Spanish property in recent years can seek out compensation from the Spanish government.

Bad News

However, when looking at France, it seems like the news are bad rather than good for the roughly 200,000 British property owners. France’s new president, Francoise Holland, is now looking to tax those who are well-off in order to battle France’s budget deficit, through something that is labeled a “social charge”.

It was on Wednesday this week that the French government announced plans to increase taxes on foreign-owned second homes. For rental homes, taxes are set to increase from 20 percent up to almost double, 35.5 percent. Capital gains tax regarding property sale will see a similarly large increase, from 19 percent up to 34.5 percent.

This measure could have an impact on Britain’s already depressed levels of saving, which while less popular than before is still as important as ever. Especially saving for children is becoming increasingly important, with university fees skyrocketing and the property market getting harder and harder to enter.

Children’s Savings In The Crossfire

That’s why many parents now chose to save for their children’s future in a Junior ISA, which is offered by providers such as Family Investments. The Junior ISA is an account designed to encourage savings for children, seeing as it is tax-free and the money becomes the child’s in full when he or she turns 18.

In light of these plans, a source from the Treasury said that they will look into the details, and that they will challenge any proposal which is in violation of European single market laws and anti-discrimination rules, as was the case with Spain’s high inheritance tax on properties owned by foreigners. Last year, France’s previous president Nicolas Sarkozy proposed a similar tax increase, which was challenged by the British government.

The increase in taxes regarding rental homes will take effect retroactively from January 1 this year, while the tax increase on capital gains will go into effect at the end of July.

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