UK owners of property owned in Europe can sleep a little easier tonight after two key decisions in relation to properties owned in France and Spain. The EU has ruled that taxes recently introduced by France in relation to British owners of second properties violate European law and the authorities in Spain have ruled that British people that were duped into buying illegal homes in Spain during their property boom can be entitled to compensation. Campaigning on these issues by the British Government and also by a determined group of affected property owners has resulted in decisions that show fairness and understanding.
In 2012, the French government introduced stinging new charges on second home owners, which hit hundreds of thousands of Britons. Tax on rental income from second homes was raised from 20 per cent to 35.5 per cent, whilst capital gains tax was increased from 19 to 34.5 per cent. These increases comprised a mandatory, 15.5 per cent 'social contribution' which raised an additional €250 million a year for the French welfare system. However, because the charge was categorised as a 'contribution' rather than a tax, it did not qualify for Britain's double-taxation treaty with France, meaning that British second home owners were effectively being taxed twice – once in France and then again in Britain. But now the European Court of Justice has ruled that the 'social contribution' charge violated EU law because it is illegal for EU citizens to contribute towards the social security systems of two member states at once. Britons affected by this charge can now claim back any monies that they have already paid.
Meanwhile, in Spain many Britons bought properties in the boom years in good faith only to find that the homes had been built without planning permission. Spanish law required the buildings to be demolished by the developer, at their expense, regardless of whether they had already been sold – and with little or no provision for compensation to the innocent purchaser. The Spanish government has now made an amendment to its country’s law meaning that those who bought their properties in good faith must be compensated prior to demolition.