Real estate loan: towards the end of the tax credit

The government wants to create a “zero-rate loan strengthened” unconditional resource to offset the disappearance of the tax credit on loan interest, says Christine Lagarde

The government will abolish the tax credit on mortgage interest and set up in 2011 a “unique tool” for homeownership, announces the Minister of Economy Christine Lagarde in an interview with Les Echos this Wednesday.

This “unique tool” will take the form of a “reinforced zero rate loan”, which will be “universal, that is to say without means test, but it will be reserved for first-time buyers,” explains the minister. This assistance will be “accentuated for low income, geographical areas of high tension and purchases in the new,” says Christine Lagarde. “The precise scales will be finalized in September for entry into force in early 2011,” she adds.

The new scheme will replace “a complicated maquis of aid”, according to the Minister of the Economy, as the tax credit on interest on real estate loan, the loan at zero rates under resource condition … “Its ‘Simplifies to be more efficient,’ she insists.

This tax credit on borrowing interest was one of the flagship measures of the “tax package” wanted by Nicolas Sarkozy in 2007 but also a costly tax niche. “The current beneficiaries will continue to benefit from the tax credit, which lasts five years,” said the minister.

The new scheme is expected to cost 2.6 billion euros a year, compared to 2.8 currently

A mechanism will provide, in case of “skidding during the year”, automatically adjust the scales to “cool + the system” and limit its cost. There should be more beneficiaries, says the minister, who does not give figures.

The government also wants to “accelerate the changes in real estate properties and avoid the retention of building land.” The minister mentions two avenues: to make the tax on the capital gains on the sale of a house increase in time, and no longer to decrease, and make “systematic” and no longer optional, the increase in the property tax for building land, “To encourage homeowners to build or sell”.

Currently, the State devotes seven billion euros per year to five devices: PTZ, Personal Housing Assistance (APL), housing savings plan (PEL), “Pass-Foncier”, which pays the land after housing, and a tax credit on interest on mortgages.

The question of a possible increase in the VAT rate to 5.5% on building renovation work “will not be decided before September, according to Christine Lagarde who wants above all” keep a simple mechanism, which does not encourage fraud “.