Capital gains tax in France
- Credit: Fotostudio Franz Pfluegl
Sue Busby gives an update on the latest changes and charges
Francois Hollande has certainly not done any favours for those who want to sell their second home in France. The effective rate of tax on most sales is now 35.5%. This is made up of plus-value (French capital gains tax) of 19% and a social tax of 15.5%, the latter previously only payable by French residents as it was thought unfair to impose this on residents outside France who would not benefit from it. Unfair or not, it is now payable by all the EU residents.
WHAT IS CAPITAL GAIN?
Simply put, your capital gain is the difference between the amount you are selling you property for and the amount you bought it for. You deduct the purchase price from the selling price and that is your capital gain.
However, it is not quite that simple. For the purposes of calculating capital gains tax (plus values) both the purchase and selling prices are adjusted thus:
A) Purchase price
Take the purchase price and add on the cost of the expenses you incurred at the time of purchase. You can use the real costs of notaire’s fees and agent’s fees providing you have documentary evidence to support this. Alternatively, you can apply an allowance of 7.5% of the purchase price. Sometimes, it is more advantageous to apply this allowance, even if you do have documentary evidence.
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You can also add on the cost of works which can be described as construction, reconstruction or a new element of comfort such as a new bathroom. In order to offset these works, you will need to provide invoices from French-registered builders and proof of payment usually in the form of bank statements. Alternatively, an allowance of 15% can be applied providing the property has been owned for at least five years.
B) Selling price
Take the selling price and deduct the expenses associated with the sale. These include the cost of diagnostics such as lead, termites and asbestos and agent’s fees.
CALCULATING YOUR CAPITAL GAIN
For the purposes of calculating the tax payable, the basic capital gain is reduced by an allowance which is applied depending on the length of time the property has been owned. The allowances are applied as follows:
• 2% for each year from the 6th to the 17th year of ownership
• 4% for each year from the 18th to 24th year of ownership
• 8% for each year from the 25th year of ownership
Once the capital gain amount has been reduced by this allowance, the resulting figure is used to calculate the tax.
TYPES OF TAXES
Three types of tax are applied:
1) Plus-value (PV) at a rate of 19%
2) Social tax at a rate of 15.5%
3) Surtaxe (an additional tax) payable up until 31st December 2015 on a sliding scale as follows. It is necessary to use the formula shown to arrive at the correct calculation:
Amount of capital gain: Formula for calculating surtax
€50,001-€60,000: 2% PV-((60,000-PV) × 1/20)
€60,001-€100,000: 2% PV
€100,001-€110,000: 3% PV-((110,000-PV) × 1/10)
€110,001-€150,000: 3% PV
€150,001-€160,000: 4% PV-((160,000-PV) × 15/100)
€160,001-€200,000: 4% PV
€200,001-€210,000: 5% PV-((210,000-PV) × 20/100)
€210,001-€250,000: 5% PV
€250,001-€260,000: 6% PV-((260,000-PV) × 25/100)
Over €260,000: 6% PV
NB: This surtax does not apply to building plots.
EXEMPTIONS FROM PLUS VALUES
Selling your main home If the property you are selling is your main residence, you will be exempt from paying capital gains tax. The definition of main residence is the place where you are habitually resident for most of the year, where your family resides and/or where your professional interests are. If it is not clear where your main residence is, it is a question of fact to be decided by the French tax administration and not a question of choice.
First sale of a property in France in order to buy your main residence If you are selling a property which is not your main residence but intend to use the proceeds to buy a main residence, the sale will be exempt from capital gains tax providing that all or part of the sale price is used within two years of the sale to buy your main residence. This exemption is conditional upon the seller not having owned either directly or indirectly (eg through a company) his main residence in the four years preceding the sale. The property being sold must be one classified as a dwelling.
OTHER RECENT CHANGES
The 20% allowance which it was intended to apply to sales taking place in 2013, in order to get the market moving, has been suppressed.
The €1,000 allowance previously applying to each person selling a French property has been abolished.
Sue Busby MA, France Legal
Tel/Fax: 00 44 (0)1449 736644