A guide to capital gains tax ( CGT ) on property in France and the UK for ex-pats and those owning a home in France
All figures are stated on those given at the time of writing, but may be subject to change. The information supplied is a general view of the current situation only, and you are advised to take professional individual advice to accurately assess your situation and liability level. No responsibility can be accepted by the website or the author for any action or consequences thereof taken as a result of reading the information supplied in the article.
This is a time of change for France, as it is for the UK. British property owners who live in France (Life in France), or who own holiday or investment property there cannot afford to take their eyes off the ball. Financial affairs are seemingly constantly under review, and no one can take anything for granted regarding property taxation issues. Capital Gains Tax (CGT) is a case in point.
On 1st February 2012, the laws in France governing how much CGT is payable on property sold, changed. This resulted in a rush of people trying to sell property before this date, so as not to incur the higher CGT charges.
Capital Gains Tax on property is the tax payable on any net profit you may have incurred on the sale of a property (Selling houses in France, Property sales in France), once expenses, relevant exemptions and allowances have been deducted.
Expenses may include fees charged by solicitors, notaires and estate agents. Also costs associated with building or renovating a property may be taken into account, as long as invoices can be produced to back these up. As is always the case in France, the paperwork is essential to prove all legitimate expenses. Other criteria, such as for families with children, are taken into consideration when calculating exemptions but are relatively minor. Further exemptions may apply as per the new Thirty-Year Rule (see below). There was also a standard fixed 1,000 Euro (2,000 for a couple) allowance that could have been deducted from any capital gain, but this has now been cancelled.
If you are a full-time French resident and you sell your principle residence in France you are not liable for capital gains. However, there are one or two points to bear in mind. Should you move out of the house before it is sold, your exemption is not affected unless the property is subsequently occupied, whether or not you receive an income for this. Also, have the paperwork to hand to prove your full-time residency. Proof of your payments of Taxe d'Habitation will be required. (Taxe Foncière and Taxe d'Habitation - property tax in France.)
Should you be a French resident and own more than one property in France and subsequently decide to sell the second property, normal French rules on CGT apply. That means you are liable for CGT, and exemptions will be based on the Thirty-Year Rule.
This rule, which came into effect on 1st February 2012, states that if you are a French resident and sell your second property in France when you have owned that property for thirty years or more (it used to be fifteen years or more), you will be exempt from the CGT and social taxes. A sliding scale of percentage exemptions applies before this time.
Any property sold before it has been owned for five years, which is not the main home of the seller, is liable for full CGT (see rates below). After this, the sliding scale kicks in, lessening the amount of CGT payable. A 2% reduction in CGT is applied if the property is sold during the next eleven years, followed by 4% per year for the next seven years, and finally 8% per year for the remaining seven years up until thirty years of ownership, when the property sale will finally be exempt from CGT. In simple terms, the resulting tax reductions will be roughly 10% after ten years, 20% after fifteen years, 40% after twenty one years, 60% after twenty-five years and 100% after the full thirty.
CGT is now to be charged at 19% rather than the previous 16%, and remember, if you are a tax payer in France you must also add the relevant social charges to this. Social charges are now set at 13.5% as from October 1st 2011, having increased from 12.5%, though bear in mind these are only levied on sales liable for CGT, not on those exempt under the thirty-year rule.
The Double Tax Treaty between Britain and France was signed by Britain in December 2009, and by France in January 2010. Effectively, this treaty made the following significant change with regard to CGT on property: British nationals who are resident in France will no longer benefit from the exemption which allowed them to escape paying CGT on the sale of their UK property. They are now required to declare capital gains in their country of residence, ie: France.
The good news, however, is that if you sell your UK property and you have owned that property for thirty years or more, you will be exempt from the CGT. A sliding scale of percentage exemptions applies before this time, which is the same as that which applies to the sale of French property (see above). You must also have been resident in the UK property for more than two years to claim total exemption, and it must have been your principal residence. This rule is now rigorously enforced, with the French authorities in particular demanding proof of length of residency.
Finally, if you are tax resident in the UK you will pay CGT in France on the sale of a second home in France in the same way as a French resident (by following the thirty-year rule and the sliding scale), but you can declare the amount paid and it will be set against any UK liability. So should the French CGT be lower than the calculated amount that would be payable in the UK, you must pay the extra to the UK authorities. However, wouldn't you just know it, it doesn't work the other way round. Should you find you have paid more in France in comparison with the UK calculation, no refund is available. C'est la vie. Once more, the paperwork to prove any entitlement to exemptions is vital. (French Tax on Holiday Homes Dropped.)
For gains after the 22nd June 2010, CGT in the UK is currently charged at 18% or 28% for individuals (according to income), 28% for trustees or for personal representatives of someone who has died, and 10% cent for those qualifying for Entrepreneurs' Relief.
However, two new rules have recently been announced which may offset the above. The first is that UK residents (or EU non French residents) selling a second or holiday home in France, which used to be their main home for at least two years, may be eligible for a CGT exemption.
The second rule applies to those EU non French residents who own a property in France that they no longer live in, that was bought five years or more ago. If the property is sold and the resulting funds are used to purchase a house that immediately becomes their main home, a CGT exemption may be possible here too.
If you hold shares in a property which has the funds held in a Société Civile Immobilière (SCI), you should be aware that the above new regime (thirty-year rule) does backdate to August 24th 2011. In the past, some property owners created SCI ownership for their properties, which effectively meant that they leased or rented their own property from a company without paying rent. This scheme also applies to many owners of leasehold property. So where the SCIs once offered tax advantages, this may well no longer be the case.
Speculation about future changes to CGT in France is rife. With many voices of dissent demanding to be heard, it is always possible that the government will have yet another rethink. At the moment it would appear that this is unlikely to happen, at least in any major way, as the president, Nicholas Sarkozy, is carefully guarding his own popularity in view of the upcoming elections and is understandably wary of rocking his own boat by introducing more controversial measures at this time. After the elections, the story may be different as pressure for review is mounting due to the need to improve France's financial standing. Don't take your eye off the ball.
Disclaimer Reminder
All figures are stated on those given at the time of writing, but may be subject to change. The information supplied is a general view of the current situation only, and you are advised to take professional individual advice to accurately assess your situation and liability level. No responsibility can be accepted by the website or the author for any action or consequences thereof taken as a result of reading the information supplied in the article.
French Wealth Tax
Benefits in France for UK Ex-pats
Savings and investments in France
Sarkozy and French property owners
Tax in France
Health care in France - another U-turn by Sarkozy
Joanna Simm moved to the Languedoc area of south-west France in October 2004 having found her property through French Property Links.
I am thinking of selling my property in France in Brittany having had it for
nine years. It is a secondare residence. If I change it to my main address and move to France my questions are :-
1) HOW LONG DO I HAVE TO LIVE THERE TO MAKE IT MY MAIN RESIDENCE?
2) HOW MANY TAX RETURNS DO I HAVE TO DO SO I DO NOT PAY CGT?
Thanks for contacting us. I understand that if you spend 183 days or more at your property in France each year, then that property is considered to be your main residence. However, how many years you must do this for in order to be exempt from CGT on the sale of this house, I am uncertain. I have heard it is just one year (with one tax return necessary), as well as two and five years. Certain conditions do have to be met, and it does sometimes vary between regions/prefectures.
Therefore, as I am not an expert in these matters, I would suggest you contact a legal advisor.
** We have now published an article with more detail about this. See Holiday Homes in France - how to avoid Capital Gains Tax when you want to sell. **
We purchased a house seven years ago around Uzes. We would like to move locally to a larger property. Selling our existing house will incur Capital Gains Tax in both France and UK as it a second home. Seems unfair as we will be replacing our existing house with one of more value. Equally, one of the same value in a cheaper area would fall into this problem Any thoughts on avoiding this?
If not, it's worth considering when you purchase a house that the house you purchase should have potential for expansion to avoid attracting capital gains in subsequent sales as you require more space. The exemptions from CGT in UK are less generous than in France and are not based on percentage. Much is mentioned of CGT in France but beware the additional taxes on this side of the Channel can be more costly.
Thanks for contacting us. Our article above does state the CGT that must be paid on French holiday homes when sold, and I would certainly hope most people are aware of any CGT implications in both France and the UK, when buying a second home in France. But your point about buying a big enough property in the first place, so that you don't have to sell up and buy a bigger property if you then need more space, is a good point.
Unfortunately the only way I can think of to reduce your CGT, would be for you to move to France and make your holiday home your main residence, and then sell it. Obviously this is not possible for the majority of people, but I understand it something that quite a few people do.
However, as I am no expert in these matters, I would suggest you contact a legal adviser for expert advice.
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