Holiday Homes in France - how to avoid Capital Gains Tax when you want to sell

Find out how CGT can be avoided on the sale of French holiday homes or second homes in France

Disclaimer

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 for any action or consequences thereof taken as a result of reading the information supplied in the article.

*** NEW FRENCH TAX LAWS ***

Since writing this article below, tax laws in France have changed. Further more recent information on French tax can be found on our site using this link:

Moving to France

Please note that information given in the articles found here may supersede the relevant sections below.

Capital Gains Tax on property

The new Capital Gains Tax (CGT) regulations in France came into force on February 1st 2012 (Capital Gains Tax in France on Property). They have put many property sellers into a difficult situation. In brief, the new laws put an end to the old "Fifteen-year rule" which had made holiday homes or second homes exempt from CGT if they had been owned for fifteen years or more. The exemption now only applies after thirty years of ownership. This applies to residents and also non residents of France.

French property market prior to February 2012

There was evidence of panic selling in the last month of 2011 and in January of 2012, with agents reporting an increased number of price reductions as owners tried to meet the deadline and offload their properties to avoid the dreaded new tax. Now the deadline has passed, however, owners with a second property or holiday homes in France are considering their options.

CGT in France on property - who does it affect?

Before panicking, check that French CGT applies to you. You will not be affected if you sell your main residence in France. You will not be affected if you sell your second home in France after thirty years or more of ownership. If you have owned the property for less than thirty years, a sliding scale applies after five years of ownership.

Has your French property increased in price?

You will not be affected if the sale of your second home in France does not achieve more than the original purchase price. The tax is levied on capital gains and only applies to such. As many sellers are now reducing the prices of their homes in response to the current economic situation, fewer large gains are being made. This especially applies to those who bought their second homes in France at the height of the market in 2006 when prices were highest. Small gains may not be as expensive as some sellers fear.

A new exemption on CGT in France on property

A new exemption has been added to the laws, though it only applies to those who are already French residents. The exemption affects owners of a property in France that is used as a holiday home or second home, but where the owner does not own their main residence. So, if you own a holiday or second home in France but live in rented accommodation, you will not be liable for CGT on the sale of your French house, as long as you are a French resident. (Updated 20/2/13.)

How to avoid CGT when selling your French holiday home

If you want to sell your holiday home in France, but have been using your UK property as your main residence, you may consider becoming a fully fledged French resident (in your French property) in order to avoid CGT. This is a real possibility, but it is important to make sure it is not a false economy! If you had not otherwise wished to live in France, it may not be worth the upheaval and hassle to save a little on CGT.

Becoming a French resident involves making many changes

There is a lot more involved than simply spending more time in France. You will need to complete tax declarations in France (and in French!), become part of the French health care scheme (which doesn't happen overnight and can be quite frustratingly complex), and transfer your everyday life to France. You'll have to French register your car (Taking a car to France and registering it in France) or buy a French car (Second hand cars in France) and everything else that goes along with the ex-patriate lifestyle.

Schooling in France

If you have children, they will either have to attend boarding school in the UK or move to the French education system (French Education System - Schools in France). Again, this can be traumatic and disruptive, especially if you do not intend to stay in France beyond the couple of years it may take to establish residency and sell your property.

Take expert advice before making your French holiday home your main residence

So, there are disadvantages associated with making your French property your main residence. However, it is an option, and if you calculate that your CGT would be sufficiently high to justify the need for a move, it is one worth considering. The laws are complex however, and individual cases may differ so before you take this step you are advised to take expert advice.

French residency - how to get it

Contrary to popular opinion, establishing residency is not usually a question of living in the property for a certain number of years, months or weeks. This can be a consideration, but only if the question of residency is not resolved through the first choice test of tax residency.

1. Tax returns in France

In the majority of cases, French residency is established though the submission of tax returns. If you pay taxes in France, you are usually considered to be French resident. There are cases reported where a person who barely occupies their house in France but whose business and family interests are centred in France is actually considered a French resident and required to pay tax in France. But it is vital to understand that if you live in France, you must complete tax returns in France. This is a legal requirement. (Tax in France.)

So, to avoid paying CGT when you come to sell your French house you need to submit tax forms from that address for one or two years. Regions and departments and even prefectures can differ on their requirement for the number of tax submissions necessary.

One further point: It is your responsibility to request a tax form, not the government's responsibility to send you one. You can do this online (http://www.impots.gouv.fr/), at your local Mairie or at the local tax office.

2. Proof that you are resident in your French holiday home

For a house to be considered your main residence it must also be available for your use. It sounds obvious, but you cannot claim residency of a property that is rented out to someone else! Payment of the Taxe d'Habitation is also a proof of residency, as unlike the Taxe Foncière it is usually only paid by the occupier. Your name on the utility bills is also a useful extra proof, should it be required.

3. Habitual residency in France

Although by far the most important factor in establishing a house in France as your main residence is your tax situation, there are instances where other factors can come into play. If there is any query about your residency (if it cannot be established through taxes and financial/business interests), it is helpful to have lived in the French property for at least 183 days. This is considered to be habitual residency and is enough to establish main residency.

4. Health care in France

Being registered with the French health care system (Health care in France) is another factor that points to residency. This is because it also proves tax residency, as no one who is not tax registered in France can join its health service legally.

5. Vague residency

Other factors which may be considered in rare cases of "vague residency" are nationality, business interests or family connections. However, vague residency is very rare and unlikely to apply to you.

French nationality

Obtaining French nationality is a completely different thing from being classed as French resident. It has nothing to do with being liable to pay CGT on property and is a far more complicated process than becoming French resident.

Articles about French tax

If you want to check out the legal situation from the law for yourself, the pertinent articles are as follows:

1. Article 4B of the Code Général des Impots (The French tax code).
2. Article 3 of the France/UK Double Tax Treaty.

Watch out for more changes

The French government is notorious for making changes to its laws on such matters, and there are no guarantees how long the current laws will remain as they are at the time of writing. (March 2012). Keep an eye on the situation and enlist expert advice if in doubt.

Additional articles which may be of interest:


How To Buy the Perfect Second Home in France
French Tax on Holiday Homes Dropped
Taxe Foncière and Taxe d'Habitation - property tax in France

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 for any action or consequences thereof taken as a result of reading the information supplied in the article.

your questions...

1. A question about CGT on the sale of UK buy-to-let properties (added 29/8/12)...

We are thinking of becoming French residents - we understand the rules in relation to CGT on our UK residence but wondered what the French tax authorites would charge us in relation to the sale of our UK buy-to-let properties which we have never lived in or have not lived in for many years. Would the 30-year rule apply or would we be liable for the full 32.5% regardless of how long we have owned them in the UK?

Jo Rhodes, editor of French Property Links replies...

Thanks for contacting us. I would think that if you become a French resident, your buy-to-let properties in the UK would be subject to the 30-year rule, with regards to CGT. However, as I am no expert in these matters and things in France are changing all the time, I would suggest you contact a legal advisor or tax specialist.

2. A question about CGT exemption when not owning a UK property (added 4/10/12)...

We live in a rented property in the UK but have a holiday / second home in France - please could you advise, in line with your advise above, how we inform the notaire that we should not pay CCT.

Jo Rhodes, editor of French Property Links replies...

Thanks for contacting us. My colleague Joanna assures me this rule was in existence at the time of writing. But there were a lot of changes around this time, and later. If your notaire says it is not correct (which could well be the case), perhaps ask him if he was aware of this rule having been in existence at one time. You could also try asking a different notaire.

And as I am not an expert in such matters, it might be also worth talking to a legal/tax advisor, for accurate, up to date advice.

3. A question about CGT when selling a home in France (added 27/11/12)...

We intend to sell our French house within the next couple of years. We originally came in 2001 intending to reside permanently but my husband only worked here for six months. We had carte de sejour and carte vitale but did not file tax returns (ignorance). We have not used our house much for five years. We do not own a home anywhere else. Will we have to pay CGT?

Jo Rhodes, editor of French Property Links replies...

Thanks for contacting us. I understood that as you do not own your main residence, you may be entitled to an exemption. Though as I am not an expert in these matters and since our article was written, tax rules may have changed, I would suggest you contact a tax specialist or legal advisor for accurate up to date advice.

4. A question about possible tax liabilities when renovating a property (added 28/2/13)...

I have permission for change of use of a barn on my French property, which I have owned for fifteen years, and have begun renovating it. If I sell it what tax liabilities will I face in France?

Jo Rhodes, editor of French Property Links replies...

Thanks for contacting us, though as I am no expert in these matters I would suggest you contact a tax or legal advisor, perhaps using the following link on our site:

http://www.frenchpropertylinks.com/frenchlegalservices.htm

You could also perhaps contact PKF (Channel Islands) Limited, who provided the information for our some of our articles on tax in France (www.pkfci.com or telephone +44 1481 727927).

5. Questions about tax liabilities with no capital gain (added 7/5/14)...

Hi - I own two properties in France. Selling one, not registered in France as a resident. Selling the property for under the price I paid in 2008. I assume there is no liability as there is no gain. Is it as straightforward as that? What liabilities are there in relation to GGT and local tax? Thanks in advance.

Our reply...

Thanks for contacting us. I would also assume that there would be no CGT liability as you made no gain, providing you have all the necessary paperwork, but as I am no expert I would suggest you check with a tax advisor for expert advice on any tax issue. Perhaps you could contact Virginie Deflassieux, Catherine Le Pelley or Kirsty Green at french.tax@bdo.gg, who provided many of our tax articles, or telephone +44 1481 724561. Alternatively visit their website www.bdo.gg and click on French Tax.

6. A question about CGT liability when selling a holiday home (added 7/1/15)...

I have a holiday home in France but would like to sell it to buy a larger property. Would I be liable to CGT if all the funds are put into the new property? Thanks.

Our reply...

Thanks for contacting us. There are certain criteria which must be met for CGT to be exempt or reduced, when selling a second/holiday home in France, the main one being whether you are or were a French resident. Our updated article on CGT, "French Capital Gains Tax and Social Charges on Property 2014" (http://www.frenchpropertylinks.com/moving-to-france/capital-gains-tax-france.html) should explain things.

7. A question about CGT liability when selling and then buying a new property (added 1/4/16)...

We want to sell our French second home and buy another. If we roll the proceeds of the sale into our new property are we still liable for capital gains tax?

Our reply...

Thanks for contacting us. I am not sure if you are a UK or French resident, or whether you own your main home, but if you are a UK resident and own a main home in the UK, I don’t think this would be possible. As we say in our reply above, "There are certain criteria which must be met for CGT to be exempt or reduced, when selling a second/holiday home in France, the main one being whether you are or were a French resident. Our more recent article on CGT, 'French Capital Gains Tax and Social Charges on Property 2014' (http://www.frenchpropertylinks.com/moving-to-france/capital-gains-tax-france.html) should explain things".

However, for expert advice I would suggest you contact a tax advisor.

8. A question about Capital Gains Tax - CGT (added 4/3/17)...

If you have owned a French property for over thirty years and are resident in England, do you have to pay capital gains in either France or England? Thank you for your help.

Our reply...

Thanks for contacting us. If you have owned a property in France for over thirty years and are a UK resident, you will have UK capital gains tax to pay. No capital gains tax is payable in France, as you have owned the property for over twenty-two years.

9. A question about when you have to pay UK CGT (added 31/8/17)...

If I put the money from the sale of my French second home in a French bank do I pay GB Capitol gains tax or only when I transfer this money to an English bank in the UK?

Our reply...

Thanks for contacting us. I understand that you would pay UK Capital Gains Tax, should it be owed, once it is incurred, wherever the money is kept. However not being an expert in this matter, you may want to check this with a legal/tax advisor.

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