French tax laws that took effect from early this year should be positive for the Monaco property market overall, financial and tax planning firm Ellisium Partners says.

A French law, passed last year, cuts to 4.5 per cent a registration tax on Monaco property sales, adding to the benefit of how investors can rent out property in the tiny principality without having to pay tax on rental income. They also are free of capital gains tax, Cecile Acolas, a specialist at Ellisium Partners, said in a note. Another benefit, she said, is the possibility of an owner of a Monaco property being able to transfer to a spouse or children without having to pay inheritance tax.

Her comments come in the wake of a number of changes to tax laws in France. A rule called Law 1381 (29 June 2011), now taking effect, “substantially reduces the tax payable by individuals purchasing a property in their own name or through a Monaco SCI, while slightly increasing the tax on a purchase through an offshore entity”, Ellisium says.

Clients who buy Monaco property tend to be so wealthy that the impact of such laws may add a small additional incentive, the firm said.

Previously, such a transaction taking place offshore escaped tax but as part of moves to increase fairness, such transfers now incur tax.

French tax changes

Among changes introduced last year and coming into force from 1 February, a person owning a second home in France must hold it for at least 30 years to obtain relief from capital gains; previously, an owner must have held a property for 15 years.  

Other reforms that came into law from the start of January include:

-- A reduction in tax incentives for French tax residents; when investing in specific real estate properties, overseas investments and ecological equipment, French corporate taxation of prior losses will be changed. 

-- Under changes that took effect in 2001, are adjustments to taxation of trust. French law now considers the settlor of a trust who has a French “link” as being the owner of the underlying assets in terms of applying wealth tax. As previously reported by WealthBriefing, increased disclosure requirements have been imposed on French trusts, which have been likened to the onerous compliance tests now applied on financial institutions dealing with US citizens.

The top rate of wealth tax in France has also been cut to 0.5 per cent from 1.8 per cent.