British owners of holiday homes in France are to be hit with punitive tax rises under plans announced by the new Socialist government.

Approximately 200,000 Britons own second homes in areas such as the Dordogne and other parts of France, particularly those serviced by budget airlines.

Now, however, holiday home owners find themselves in the sights of President François Hollande as he seeks to tax the better-off to reduce France's large budget deficit.

On Wednesday (July 4th), the French government announced it was to increase taxes on foreign-owned second homes. Tax on rental income would rise from 20 per cent to 35.5 per cent, and capital gains tax on property sales would rise from 19 per cent to 34.5 per cent. The extra in each case is being labelled a "social charge".

A Treasury source said on Wednesday night: "We will need to study the details. But we will of course challenge any proposal which breaches European single market laws and anti-discrimination rules."

It is understood that President Sarkozy proposed a similar tax increase last year which was also challenged by the British Government.

The rise in tax on rental income will be retrospective, from Jan 1 this year. The increase in capital gains tax applies from the end of this month, meaning property owners will have little time to escape the increased tax by selling their homes.

David Cameron infuriated the French last month by promising Britain would "roll out the red carpet" to wealthy French citizens and companies who wanted to emigrate and pay their taxes in Britain.

Holiday home owners already pay two other taxes to the French government: the taxe fonciere, which is paid by the house owner and thetaxe d'habitation, which is paid by those who live in it.

The tax rises are part of a wider package of increases that are intended to raise €7.2 billion (£5.8 billion) to meet a budget deficit target of 4.5 per cent after the government of Nicolas Sarkozy left the French exchequer with an expenditure black hole.

An additional €2.3 billion (£1.8 billion) will be raised from a levy on those whose net wealth is €1.3 million (£1 million).

"If the law is introduced, the effective rate of French capital gains tax will almost double for EU residents on their French property capital gains," said Graeme Perry, a partner at Sykes Anderson, which advises British citizens on French residences. He said the move ran the risk of further damaging the property market in France, "particularly at the higher end".

The French finance ministry said the new rule would affect about 60,000 rental properties in France whose owners made an average profit of £12,000.

It said this would add €50 million (£40 million) to French revenue this year and €250 million in 2013. Jean-Claude Cassac, the secretary general of the French estate agency federation, in the Dordogne, home to thousands of British expatriates and holiday home owners, said the new move was a "catastrophe".

"The plummeting pound meant that the English had almost disappeared from the Dordogne house market. With this, it's as if they want to totally kill off the foreign home owner market in France."

Last month Mr Cameron told a business summit in Mexico: "I think it's wrong to have a completely uncompetitive top rate of tax. If the French go ahead with a 75 per cent top rate of tax we will roll out the red carpet and welcome more French businesses to Britain."

Under the double taxation system, UK residents deduct any tax paid at source in France on French gains from the UK tax on the same gains. But if the French tax is higher, they will receive no rebate.

Paul Smith, a partner at accountants Blick Rothenburg said: "The UK Government is subsidising the French. It will be collecting less income tax off taxpayers who have houses in France."

There are an estimated total 360,000 non-resident second home owners in France.----

Source: http://www.telegraph.co.uk/finance/personalfinance/offshorefinance/9377307/Francois-Hollande-announces-French-tax-grab-on-holiday-homes.html