Your French tax questions answered
FrenchEntrée readers have been sending in their questions on tax and France. Experts from financial advisers Siddalls give their answers.
Q: Do we have to pay capital gains tax even though it’s our main home?
We are selling a property in France for €150,000 and it is our principal residence. We have owned it for three and a half years. We do not work in France, but live off a small pension and capital from the sale of a house in England. We have never filled in a French tax return and want to know if we are subject to capital gains tax and if so, how much?
A: In theory, the sale of a principal residence in France is free of CGT
However, as you have not completed tax returns in France, the French will not normally consider you as being resident here and it is now practice to consider your home as a maison secondaire. This being the case, you will be liable to 19% CGT on any gains you have made. As you have only owned the property for three years, there are no allowances, although renovation works can be offset against your liability if you have bills from artisans showing work completed at that address.
If you were a French resident, on the sale of a second property there is a further 15.5% 'social charge' to pay on the gain, making taxation 34.5%! Make sure your notaire only charges you 19% CGT. The French cannot say you are not resident as you have not completed tax returns here and tax you as a maison secondaire and then get the social charges as if you were resident here - they can’t have it both ways.
Some clients ask ‘Can we backdate our tax returns to gain acceptance for tax residency?’. In most cases, this has not been allowed but is down to the local tax office involved. If your past ‘potential’ income tax bills in France would have been lower than your CGT bill, it may be worth a try. You would be able to get any tax paid in the UK back for the same period but this will only work with the agreement of your French tax officer.
Further, this whole situation could open a can of worms for you, as by living here for three years and not making tax returns to the French authorities, you have broken the law and in theory, the French can go back for the period you have been here and charge you for income tax with heavy penalties!
David Hardy, Siddalls
Q: Spending a year in France – will we be tax resident?
We are making plans to spend a year in France, renting a property there and financing this by renting out our house in the UK. Can you tell me if we are liable to French taxation if we spend a year there or can we pay tax in the UK only?
A: You are likely to be considered French resident.
This means you would be liable to French tax, as you will be spending more than half the year in France and will no longer have a main residence available to you in the UK (as it would be rented out).
French taxation is on a calendar year basis and it is quite normal to do a partial year self-assessment return (to be submitted in May) for part of the previous year when moving to France.
You are obliged to declare your worldwide income. However, there are two main sources of UK income that remain under UK tax (although noted on your French tax return, you will not be taxed twice). These are UK rental incomes from property and UK public services pensions. Any other UK income, from bank interest etc, would be subject to French tax.
Marjorie Mansfield, Siddalls
Q: We thought we had the right to choose our country for tax residence status.
In 2001, my husband and I bought a property in France that we completely renovated. For the first two years, we used it as our holiday home. After that, it became our main residence. Now that we are thinking of selling, we are running into a slight problem...
Although we do not own any other property elsewhere in the world, we are using the French healthcare system with our carte vitale and are both de-registered from the UK, the French still see us as second home owners. This has the implication that we now have to pay tax on the capital gains when we sell and we do not think this as fair, as we simply do not own another house. What can we do?
Apart from the taxe foncière and taxe d'habitation we have not paid any other French taxes simply because we thought we had the right of choice under the double taxation treaty and thus choose the UK. The UK considers us resident in France, but my husband pays his income tax in the UK. I have elected to pay mine in Holland (as I am Dutch) although they consider me resident in France.
However, because we do not pay income tax in France, the French consider us resident for health but non-resident with regards to the house. The notaire considered all this to be logical but the bottom line is, we have to pay tax on the capital gains.
A: It seems that you are clearly residents in France as you have been living in your principal residence since 2003
The problem is that you are still considered to be ‘on holiday’ and, as such, your home is being classified as a secondary property or maison sécondaire and will therefore be subject to capital gains tax when it is sold.
As residents, however, you have an obligation to make an annual tax declaration in France and the French have the right to tax your worldwide income. By filing a return, you will be proving to the tax authorities here that you are indeed tax residents and should therefore avoid paying CGT on the profit made on the sale of your house.
I hope that this has been of some help and recommend that you speak to your notaire for further clarification.
David Hardy, Siddalls
For more information, contact:
Tel. +33 (0)5 56 34 75 51
Authorised and Regulated by the Financial Services Authority. Siddalls is a trading name of John Siddall Financial Services Ltd. Independent Financial Advisers, John Siddall Financial Services is a wholly-owned subsidiary of the IFG Group Plc.
Please note that the above is for general guidance only. For detailed individual tax issues affecting you it is vital to seek specific advice from an expert.
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