Charlotte Macdonald is a consultant associate solicitor in Stone King’s international and cross-border team.
Charlotte answers legal and practical questions that are often asked by her clients in relation to France; whether that be buying or selling property in France, inheritance law, or how inheritance and capital gains tax are treated between the UK and France.
Are you resident in the UK, and own a property in France?
If so, and you are thinking of selling your French property, and the sale proceeds are going to be higher than the amount you initially paid for it, you need to think about Capital Gains Tax (‘CGT’).
If you live in the UK, and the property is in France it is important to consider CGT implications from both a UK and a French perspective.
Capital Gains Tax in the UK
CGT is a tax which is charged on the gain made when you sell or ‘dispose’ of a property.
The rules relating to CGT are complicated, and not only apply when you sell a property, but also when you give a property away (this is known as a ‘deemed disposal’).
There are exemptions to CGT. For example, broadly speaking, you do not pay CGT on the sale of your main home when you sell it, even if it has made a huge gain.
CGT is charged on an annual basis. The tax year in the UK starts on 6 April and finishes on 5 April the following year. For example, the 2021-2022 year of tax assessment runs from 6 April 2021 to 5 April 2022.
If you are resident in the UK, then HMRC will assess your worldwide disposals for CGT. Meaning that if you sell your home in France for a profit, then you will likely need to report this in your UK tax return.
In the UK, an individual has a CGT free allowance of £12,300 for the tax year 2021-2022. This means you can make a gain of £12,300 before any CGT is payable.
For residential property, the amount of CGT payable on the gains is dependent on the individual’s income tax situation. If your gain falls within the basic rate tax band, the rate of tax is 18%. If the gain falls into the higher or additional rate tax bands, the rate of tax is 28%.
Example – James’ Holiday Home
James, a UK resident, has just sold his holiday home in Bordeaux. He originally bought the home for £200,000 and sold it for £350,000. James has made a total chargeable gain of £150,000 on the sale of his chateau.
Assuming that James has not made any other chargeable gains for the 2021-2022 tax year, he will be able to use his Capital Gains tax-free allowance of £12,300.
The calculation of James’ CGT bill on the sale of his French home would be as follows:
Sale price £350,000
Less: Initial purchase (£200,000)
Total chargeable gain £150,000
Less: Capital Gains tax-free allowance (£12,300)
= Taxable Chargeable Gain £137,700*
It will depend on how much James earns in this tax year as to how much of the gain will be taxed at the basic rate of 18% or the higher/additional rate of 28%.
*Please note that this is a very basic summary. In reality, there may be other costs that James can offset against his CGT liability.
Capital Gains Tax in France
Like the UK, France also charges CGT on the sale of property, if it has sold for a profit.
The headline rate of CGT in France is 19% but this reduces over time. So, the longer you have owned the property the less CGT there is to pay (after 22 years there is no French CGT to pay).
It is important to note that, in addition to CGT, France also applies Social Charges to gains made on the sale of a property. The headline rate of these are 17.2%, but it too is tapered (after 30 years of ownership there is no French Social Charge to pay).
Please note that French CGT, like UK CGT, is complicated and there are additional exemptions and a supplementary tax not covered in this article.
Do I Pay CGT in the UK and France?
Unfortunately, the answer could be, yes.
If you are UK resident when you sell your holiday home in France, you may have to pay CGT in both the UK and France.
Fortunately, there is a double taxation treaty between the UK and France which prevents an individual from being taxed twice for the same capital gain. It is important to note that generally only the CGT paid in France can be offset against the CGT paid in the UK.
It is not possible to offset all the Social Charges against UK CGT, however it may be possible to offset a proportion of these (the prélèvement de solidarité) element.
Following Brexit and the UK’s withdrawal from the EU, a UK resident now selling their property in France for a sale exceeding €150,000 will generally have to appoint a French tax representative (représentant fiscal).
The role of the French tax representative is to ensure that the correct amount of tax is being paid on the sale. A fee is payable to the French tax representative, however this is deductible from the capital gain as an expenditure.
In conclusion, if you are a UK resident and sell your home in France, it is important to note that you may have to pay CGT in both France and the UK.
However, you may be able to offset any CGT paid in France against that paid in the UK.
If you need any assistance with calculating your UK CGT liability in relation to a sale or gift of a French property, and negotiating the double taxation treaty, please do get in touch with our team.
For more information, please contact Charlotte Macdonald, Dan Harris, Raquel Ugalde or Emma Seaton at Stone King LLP by calling +44(0)1225 337599 or by emailing: [email protected].
Article written by Charlotte Macdonald and trainee solicitor Burak Demirbag.
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