Siddalls provides an update on capital gains tax in France
As in the UK, if you are resident in France and sell a property for more than you paid for it you are potentially liable for tax on the capital gain.
The gain is calculated by deducting the purchase price (plus eligible expenses) from the sale price (less eligible expenses).
Eligible expenses associated with the purchase include notaire’s fees and subsequent costs associated with construction, enlargement or improvement of the property.
For the purchase costs you can claim the actual expenses incurred or a fixed 7.5% of the purchase price.
For construction, enlargement or improvement cost you can again claim the actual costs or a fixed 15% of the original purchase price if you have owned the property for at least 5 years. If you are claiming actual costs you will need to be able to produce invoices to support the expenditure, and normally these will need to be from French registered builders.
Eligible expenses associated with your sale include estate agents fees.
Exemptions & Allowances
There are however a number of capital gains tax exemptions, the most important of which are the ‘principal residence’ exemption and the ‘thirty year rule’.
If you have been permanently resident in France and you are selling your principal home then any capital gain is fully exempt from capital gains tax.
In order to qualify the property must have been occupied by you on a habitual basis, although you need not actually be occupying it at the time of sale. However, if you leave the property before it is sold you are not permitted to let out the property during the intervening period, or to leave other family members in occupation. The French tax authority will also expect you to have made an income tax declaration from the property address and paid the “taxe d’habitation”.
If the property is not your principal residence you can take advantage of the ‘thirty year rule’. Under this rule you benefit from a tapering reduction in the calculated capital gain for each year you have owned the property in excess of five years. So effectively, after 30 years of ownership the gain is reduced to nil and no capital gains tax is payable.
The ‘taper relief’ formula works on the basis of:-
Ownership from 6 to 17 years reduction of 2% per annum of the gain
Ownership from 18 to 24 years reduction of 4% per annum of the gain
Ownership from 25 to 30 years reduction of 8% per annum of the gain
So, if a property is sold after thirty years of ownership then total relief is obtained, that is (12 x 2%) + (7 x 4%) + (6 x 8%) = 100%.
Where you have a gain subject to tax then the tax rate applied is 19% of the gain plus social charges of 15.5% of the gain.
The notaire handling your property sale will calculate the gain, approve expenses and expenditure claims and apply any relevant exemptions and allowances. The notaire will then calculate the tax payable and deduct this from the sale proceeds before you receive them.
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Siddalls is authorised and regulated by the Financial Services Authority.