The new rules look set to be introduced next April and will stop property investors with second homes from being able to write-off their mortgage interest and other maintenance bills as a business loss. Investors will also not quality for capital gains tax (CGT) relief, hitting those who will look to buy a new holiday home from the proceeds of other property sales.

Old rules state that if rental income did not meet costs (i.e. mortgage interest and maintenance costs on the property) on holiday lets, the losses could be used to reduce the amount of tax payable on the rest of the investor’s income. However from April 2010, second homes will be treated as a fully-fledged business i.e. as buy-to-lets as professional landlords.

The news is not all bad though. By switching to the buy-to-let business type, different taxes are applicable. For example they will now be able to claim a ten percent deduction for wear and tear on furnishings within the property and the property may qualify for things such as energy saving allowances.

It is important to note that the new rules will only affect UK property investors who have holiday homes in the UK. Foreign property investment is not yet affected thanks to European rules introduced earlier this year, thus foreign property investors will still be able to claim the old tax breaks.

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In anticipation of the scrapping of the tax, funds that would otherwise make their way into the UK residential and commercial property market are already being earmarked for investment in France. French property will not only provide added portfolio diversification for offshore investors but, with the investments being Euro-denominated, a currency hedge. France also offers a wider range of properties to investors than the UK, such as alpine ski resorts and vineyards, which are bound to appeal to offshore investors.

The Pierre & Vacances Group, a listed French tourism property developer and manager, has seen a sharp rise in enquiries from the three offshore territories since the beginning of the year, as investors brace themselves to move once the tax is scrapped.

“This seemingly small tax change is already big news in the investment community, with many private and corporate investors approaching us in advance of January 1″, says Nick Leach, Head of Pierre & Vacances Property Investments, UK & Ireland. “Suddenly, a big reason for not investing in France will be removed and the effect could be dramatic as more and more investors catch on.”

David Anderson, a chartered tax adviser at London-based Sykes Anderson Solicitors, adds: “The removal of this tax on 1 January will have a very positive effect on the French property market, specifically investment property, but could have a very negative effect on parts of the UK property market. From the New Year, a pool of capital in the Crown Dependencies will, for the first time, be able to flow, uninhibited, into France, with quality French property in good locations likely to do particularly well. So far, this looming tax change has passed largely under the radar, but even before its implementation it is already beginning to change investor mindsets. We have already exchanged contracts for several channel island investors on high value French properties, who are aware exclusive French properties will soon be harder to acquire as more wealthy buyers enter the market.”

About Pierre & Vacances
The Pierre & Vacances Group has been designing, developing and managing holiday homes and apartments for 40 years, anticipating European property and tourism trends. The Group’s development strategy has led to the acquisition of Center Parcs Continental Europe, Europe’s number one provider of short breaks. Pierre & Vacances takes a visionary approach to the world of holiday accommodation, and, since the birth of the Avoriaz development in 1967, has continued to grow in France and throughout Western Europe. The undeniable market leader in residential tourism, the Pierre & Vacances Group has developed a complete range of short and long stay holidays, with a choice of hotel and leisure services designed to meet every requirement of today’s European consumers. With a presence in France, Northern Europe, Italy and Spain through its three main brands – Pierre & Vacances, Center Parcs Europe and Maeva – the Pierre & Vacances Group occupies, with a turnover of 1.5 billion euros, an unparalleled position in the European tourism industry. Pierre & Vacances in numbers:

• A tourist network of 50,000 apartments and houses
• 230,000 beds – by the sea, in the mountains, in the countryside, and city centre
• 8 main brands: Pierre & Vacances, Center Parcs Europe, Maeva, Latitudes, MGM, Adagio, Senioriales, Citea
• 6.9 million customers per year
• 8,500 employees
• Annual turnover €1.5 billion

Since launching the “Nouvelle Propriété” in 1979, Pierre & Vacances has offered private investors the opportunity to enter the lucrative real estate rental market by becoming a freehold owner of a holiday property with a leaseback. The Pierre & Vacances Group is quoted on the Paris Stock Exchange and is a member of the SBF 120 (French equivalent of the FTSE100).

About Sykes Anderson Solicitors
Sykes Anderson is a niche tax and commercial tax and property law firm in the City of London with Commercial, Litigation, Property and International Tax departments. Founded in 1989, our clients are mainly wealthy individuals and entrepreneurs.

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The most notable decline in visitor numbers came from the US where visits fell by 17 percent to 3 million.

The top UK visited towns, in order of popularity, were London, Edinburgh, Manchester, Birmingham and Glasgow, proving that property investors would do well to look in these five major cities if they wish to invest in UK property.

Matching the decline in visits to the UK, UK residents also made fewer visits abroad in 2008 – down 0.6 percent to 69 million visits. Again, the final quarter of the year saw the most marked change with visits down 9 percent. Spain and France remain two of the most popular countries for Brits to visit, although slightly more unusual countries such as Romania, Mexico, Egypt and Slovakia are starting to prove a lot more popular.

John Luke Busby, director, London-based French mortgage specialist, Athena Mortgages, comments, “Once again, France and Spain remain the most popular destinations for Brits. But we aren’t just crossing the channel for our holidays. There has been a noticeable increase, recently, in the number of people enquiring about buying, or actually buying, French property.

“The main reasons for this are exceptionally competitive mortgage finance, the support being given to the French property market by the Sarkozy-led tax incentives and, closer to home, continued nerves surrounding the UK property market.”

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The imminent removal by France of the annual 3% tax on the gross value of French property that currently applies to investors based in Jersey, Guernsey and the Isle of Man will considerably widen the property market for direct investment and may threaten any nascent stabilisation in the UK property market, reducing demand for UK investment properties and applying additional downward pressure on capital values.

For the first time, and bringing them in line with the tax treatment of UK entities, companies and trustees managing investment funds in these three offshore territories will be able to invest directly in French properties without having to pay the prohibitive annual French tax of 3% of their open market value.

In anticipation of the scrapping of the tax, the purpose of which is to prevent tax evasion, funds that would otherwise make their way into the UK residential and commercial property market are already being earmarked for investment in France.

French property will not only provide added portfolio diversification for offshore investors but, with the investments being Euro-denominated, a currency hedge. France also offers a wider range of properties to investors than the UK, such as alpine ski resorts which are bound to appeal to offshore investors.

The Pierre & Vacances Group, a listed French tourism property developer and manager, has seen a sharp rise in enquiries from the three offshore territories since the beginning of the year, as investors brace themselves to move once the tax is scrapped.

David Anderson, solicitor and chartered tax adviser, Sykes Anderson Solicitors, comments:

“The removal of the French annual 3% tax for investors based out of Jersey, Guernsey and the Isle of Man will be a huge boost for the French property market, specifically investment property. However, it could have a negative effect on some parts of the UK property market. Soon, a pool of capital in the Channel Islands and Man will, for the first time, be able to flow, uninhibited, into France, with quality French property in good locations set to do particularly well. So far, this looming tax change has passed largely under the radar, but even before its implementation it is already beginning to change the dynamics of the European property market.”

Nick Leach, Head of Pierre & Vacances Property Investments, UK & Ireland, comments:

“We are receiving more and more enquiries from these offshore territories, as private and corporate investors ready themselves in anticipation of the 3% tax being formally removed. We are bracing ourselves for a sharp flurry of activity, as tax changes can always be reversed and investors will not want to
miss out.”

For more information, please contact:
Dominic Hiatt, Rhizome PR
T + 44 (0) 20 8670 4920 | M + 44 (0) 7595 221604

About Sykes Anderson Solicitors
Sykes Anderson is a niche tax and commercial tax and property law firm in the City of London with Commercial, Litigation, Property and International Tax departments. Founded in 1989, our clients are mainly wealthy individuals and entrepreneurs.

About Pierre & Vacances
The Pierre & Vacances Group has been designing, developing and managing holiday homes and apartments for 40 years, anticipating European property and tourism trends.

The Group’s development strategy has led to the acquisition of Center Parcs Continental Europe, Europe’s number one provider of short breaks. Pierre & Vacances takes a visionary approach to the world of holiday accommodation, and, since the birth of the Avoriaz development in 1967, has continued to grow in France and throughout Western Europe. The undeniable market leader in residential tourism, the Pierre & Vacances Group has developed a complete range of short and long stay holidays, with a choice of hotel and leisure services designed to meet every requirement of today’s European consumers. With a presence in France, Northern Europe, Italy and Spain through its three main brands – Pierre & Vacances, Center Parcs Europe and Maeva – the Pierre & Vacances Group occupies, with a turnover of 1.5 billion euros, an unparalleled position in the European tourism industry.

Pierre & Vacances in numbers: A tourist network of 50,000 apartments and houses 230,000 beds – by the sea, in the mountains, in the countryside, and city centre 8 main brands: Pierre & Vacances, Center Parcs Europe, Maeva, Latitudes, MGM, Adagio, Senioriales, Citea 6.9 million customers per year 8,500 employees Annual turnover €1.5 billion Since launching the “Nouvelle Propriété” in 1979, Pierre & Vacances has offered private investors the opportunity to enter the lucrative real estate rental market by becoming a freehold owner of a holiday property with a leaseback.

The Pierre & Vacances Group is quoted on the Paris Stock Exchange and is a member of the SBF 120 (French equivalent of the FTSE100).

Related posts:

1. France Defies the Recession with Safe and Stable Investments Countrywide New data coming in for 2008 and 2009 shows that despite the difficult current climate, the French property market is continuing to strengthen under Sarkozy’s...
2. UK Tax Change Projected to Alter Dynamic of European Property Market The dynamic of the European property market is set to change considerably in the New Year, with the UK potentially the biggest loser, experts predict....
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Partly the rise has been fuelled by property investors believing that the housing market is nearing bottoming out and therefore property bargains can be had. There is also a lack of good quality property on the market so when good properties have a For Sale sign on them, they are being snapped up quickly at close to the asking price. Central London is also perceived as a good area to buy in as it is relatively low risk compared to other major city properties as it is home to so much business and there will always be a good supply of renters who are professionals.

However experts are keen to warn that this doesn’t mean the housing market is about to start rocketing again. Mortgages are still thin on the ground and many are struggling to find lenders willing to lend them the money to fund property purchases. Many of the current property buyers in central London are property investors and cash buyers, both of whom make up just a tiny proportion of property buyers as a whole. The housing market will not start to free up until mortgage lending is freed up to the masses.

However the increase in property prices in the central London area should inject some confidence into the property market and this may mean that the housing market in the UK may start to slowly start its recovery over the next few months.

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