A guide to capital gains tax
PUBLISHED: 12:11 21 August 2015 | UPDATED: 12:11 21 August 2015
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Money matters can be tricky when you live with one foot on either side of the Channel, so let Rupert Holderness guide you through the muddy waters of capital gains tax
Are you looking to buy a property in France? Or do you already own one? Either way you need to know what sort of tax to expect if and when you come to sell the property.
If you sell a French property, you will be liable to French capital gains tax whether you are resident there or not.
If you are resident, then you will also have to pay the tax on any property you sell, whether it is in France, the UK or elsewhere. You will pay on the full gain, even if you bought the property a long time before you moved to France.
The good news is that your principal residence is exempt from tax. You benefit from this exemption provided the property is your habitual and actual residence at the time of sale. This is not time-apportioned, so even if you owned a property for many years without living in it, it will still be fully exempt from tax if is your habitual home at the time you sell it.
On the other hand, if you leave a property without having sold it you could lose relief completely, even if you had previously lived in it for many years. However, the exemption can apply for up to 12 months after you move out, as long as the property has been constantly on the market and not rented out.
In most cases, this exemption also applies if the property is held in an SCI (Société Civile Immobilière), which is a French property holding company. This applies whether the property itself is sold, or the shares of the SCI.
Gains on property are taxed at a fixed rate of 19%. There are currently surtaxes, which can push the tax rate up to 25%, as follows:
Up to €50,000: 0% surtax, 19% total tax
€50,000-€100,000: 2% surtax, 21% total tax
€100,001-€150,000: 3% surtax, 22% total tax
€150,001-€200,000: 4% surtax, 23% total tax
€200,001-€250,000: 5% surtax, 24% total tax
Above €250,000: 6% surtax, 25% total tax
Social charges are also levied on top of the capital gains tax at a rate of 15.5%. This makes a total top tax rate of 40.5%.
If you are selling a property that is not your main home, there is a taper relief system that will lower the amount of taxable gain, depending on how long you have owned the property. The systems are different for income tax and social charges.
For capital gains tax, from the 6th year of ownership to the 21st year, the taxable gain is reduced by 6% each year. For the 22nd year it is reduced by 4%. This means that once you have owned a property for 22 years, there is no capital gains tax to pay.
For social charges, from the 6th year of ownership to the 21st year, the gain is reduced by 1.65% each year. For the 22nd year it is reduced by 4%. For the 22nd year it is 1.6%. Then for years 23 to 30 the reduction is 9% each year. Therefore, no social charges are due if you have owned a property for 30 years.
France also provides an age-related exemption, depending on your income and wealth. If you are in receipt of a state pension or hold an invalidity card, you do not pay capital gains tax on the sale of real estate if:
1) You do not have a liability to wealth tax in the tax year preceding the year before sale
2) Your taxable income in that tax year was below a certain level. For 2015 gains, the 2014 income limit is €10,633 for the first part of the household, and €2,839 for each additional part.
Gains can also be exempt if you use the proceeds to invest in acquiring a main home. So if you own a property that you do not live in, sell it and use the profits to buy or construct a home, and you have not owned a main home for the preceding four years, you do not have to pay capital gains tax. Furthermore, if you have development land to sell this year, there is an exceptional allowance of 30% for gains on land sold before 31 December 2015.
Property in the UK
Prior to April 2015, non-UK residents did not have to pay tax on the sale of UK property, provided the gain was made in a complete year of non-residence in the UK and they remained non-resident for five complete and consecutive tax years.
This has now changed, and if you sell UK residential property while resident in France (or in any other country), you are liable to capital gains tax in the UK under the same rules applied to UK residents. However, it is only the gain since 6 April 2015 that is taxed.
The gain is also fully taxable in France, though under the UK/France double-taxation treaty you do not have to pay tax twice. You receive a credit in France for any UK tax paid on disposal.
French residents also pay the 15.5% social charges on gains arising on UK real estate. In this case, there is no UK equivalent to get a credit for.
Non-residents owning French property are fully liable for French tax on the property sale.From 2012, they became liable to social charges as well, but this has been overturned by the European Court of Justice. In February 2015, the court ruled that charging French residents working outside France, and non-residents with French-source unearned income (this includes capital gains) social charges was discriminatory. Therefore if, for example, you are a UK national living in Britain, you should not have to pay social charges on any gains made when you sell French real estate.
As always with French tax, it can be more complicated than it first appears, so you do need to seek professional advice to establish exactly what your tax liabilities are and what tax planning opportunities are available. This also applies to selling a UK property as part of your move to France. If you have not moved yet, seek advice before you sell in the UK and buy in France.
Rupert Holderness is general manager of Blevins Franks France, international tax and wealth management advisers
Tel: 0800 668 1381