As with a property in the UK, if you sell a property in France for more than you paid for it you are potentially liable for tax on the capital gain.
The gain is calculated by deducting the purchase price (plus eligible expenses) from the sale price (less eligible expenses). Purchase expenses can either be claimed specifically with supporting documentary evidence or a fixed 7.5% of the purchase price is allowed without such evidence.
Subsequent costs associated with construction, enlargement or improvement of the property can also be deducted from the gain. To claim these costs specifically you will need to be able to produce invoices to support the expenditure, and normally these will need to be from French registered builders. Otherwise, if you have owned the property for over 5 years you are allowed to deduct a fixed 15% from the purchase price without providing such evidence.
Eligible Expenses for the Sale Include Estate Agents Fees
There are however a number of exemptions and reliefs, the most important of which are the ‘principal residence’ exemption and a progressive scale of taper relief which reduces the value of the gain subject to tax and social charges dependant on length of property ownership.
Main Residence Exemption
If you have been permanently resident in France and you are selling your principal home then any capital gain is fully exempt from capital gains tax and social charges.
In order to qualify the property must have been occupied by you on a habitual basis, although you need not actually be occupying it at the time of sale. However, if you leave the property before it is sold, you will only be entitled to claim main residence exemption if the property is sold within 12 months after you have ceased to use the property as your main home. In addition, you are not permitted to let out the property during the intervening period, or to leave other family members in occupation. The French tax authority will also expect you to have made an income tax declaration from the property address and paid the taxe d’habitation.
Taper Relief for Duration of Ownership
If you are selling an investment property, which does not qualify for the main residence exemption, you will benefit from progressive taper relief dependent on how long you have owned the property.
There are separate scales applying to calculate the gain subject to tax and the gain subject to social charges:
• the gain subject to tax is reduced by 6% for each year of ownership after the 5th year up to the 21st year. A reduction of 4% applies in the 22nd year, giving 100% relief after 22 years
• the gain subject to social charges is reduced by 1.65% for each year of ownership after the 5th year up to the 21st year. A reduction of 1.60% applies in the 22nd year, followed by a reduction of 9% each year from the 23rd to the 30th year. This provides for 100% relief after 30 years
The progressive application of these scales is illustrated in the table below:
|% Reduction for gain subject to tax||% Reduction for gain subject to social charges|
|Length of ownership, end of year||Reduction for year %||Cumulative reduction %||Reduction for year %||Cumulative reduction %|
Note: Since 1st September 2014, the scales apply to both built property and building plots.
Property purchased in September 2007. Purchase price (after application of all allowable deductions) = €190,000. Property sold in December 2014 for €250,000. Gross capital gain €60,000. Period of ownership in whole years = 7
|Taxable Base||Tax||Social Charges|
|Taper relief reduction for period of ownership||12%||3.3%|
|Taxable base after taper relief||€52,800||€58,020|
|Tax/social charges rate||19%||15.5%|
|Tax/social charges payable||€10,032||€8,993|
Total tax/social charges payable = €19,025
Gains Reinvested in the Acquisition of a Main Home
The sale of a property other than the main home is capital gains tax exempt if the two following conditions are fulfilled:
- the individual did not own his main home during the four years preceding the disposal of the property.
- the proceeds of the first saleare reinvestedin theacquisitionorconstruction of the individual’s main house.
Surtax on Large Gains
An additional surtax, introduced in January 2013 with further amendments later on in the year, is payable on gains over €50,000, after the application of taper relief and the temporary 25% reduction. This surtax was introduced in January 2013 and has not been removed or amended, despite the other changes which are effective from 1st September 2013.
There are five rates of surtax, depending on the size of the gain.
The following table shows a breakdown of the gain thresholds at which the surtax is triggered and the rates that apply.
|Greater than €50K up to €100K||2%|
|Greater than €100K up to €150K||3%|
|Greater than €150K up to €200K||4%|
|Greater than €200K up to €250K||5%|
|Greater than €250K||6%|
For each tax band there is a “dampening” mechanism for reducing the level of the charge for the first €10,000 of gain in that band.
Sale of Building Plots
Building plots (terrains à bâtir) sold before 1st September 2014 had their own scale of taper relief. However, since that date, the scales mentioned above for sales of property also apply to sales of land.
In addition, in order to free up land for development, a further reduction of 30% will be allowed against any gain for sales concluded by 31st December 2015.
Gift of Building Plots and Newly Built Properties
From 1st September 2014, a gift tax allowance was also established on donation of building plots between 1st January 2015 and 31st December 2015. This allowance will be given if the donee agrees to build a new residential property on the gifted land within four years from the date of gift. The amount of the exemption will depend on the relationship between the donor and the beneficiary:
- €100,000 in direct line (children and grandchildren), spouse or PACS partner
- €45,000 for a sibling
- €35,000 for any “other gifts”. This will be applicable to unrelated persons
The French government also introduced an allowance for gifts of newly built properties. These properties must have never been used for residential purposes. This allowance only applies to gifts made after 1st January 2015 for properties where the construction permit has been obtained between 1st September 2014 and 31st December 2016 and when the gift occurs within three years after obtaining the permit. As for gift of building plots, the amount of the exemption will depend on the relationship between the donor and the beneficiary (as above). For both allowances, the cumulative donations made by the same donor may be exempt only up to €100,000. However, two parents could potentially gift a new property worth €200,000 to the same child. These allowances will also be cumulative with the normal gift tax allowances.
Calculation and Payment of Capital Gains Tax
For French residents it is the notaire handling the property sale who will calculate the gain, approve expenses and expenditure claims and apply any relevant exemptions and reliefs. The notaire will then calculate the tax and social charges payable and deduct this from the sale proceeds before you receive them. The calculations are carried out in accordance with Form 2048 which you can download from the French tax authority website at www.impots.gouv.fr if you want to look at the detail.
If you are non-French resident and the sale price exceeds €150,000 you will need to appoint a French tax representative* to calculate and pay any tax and social charges due, such as SARF. See www.sarf.fr for more information.
Where you are selling a French holiday home or investment property as a UK resident taxpayer you will also need to declare any gain in your UK self-assessment tax return. If you own a property jointly with a spouse in equal shares you will each need to declare 50% of the gain separately where this exceeds the annual capital gains tax allowance, currently £11,100 per person.
Capital gains are declared using HMRC Self Assessment Supplementary Form SA108. As with the French tax return you are able to deduct from the gain allowable costs of purchase and sale and expenditure on property improvements (excluding general maintenance costs).
Under the UK/France Double Tax Treaty you are able to claim any French capital gains tax paid as a credit against any UK capital gains tax due. This is done using Form SA106 “Foreign” with the assistance of helpsheet 261. You can download the forms and help-sheet from www.hmrc.gov.uk
If the capital gains tax due in the UK is in excess of that paid in France you will be liable for the difference. If the tax due in the UK is less than that paid in France, you will have nothing more to pay, but unfortunately you will not get a refund of the extra tax you have already paid!
*[Note from the editor: tax representative no longer required for physical persons residents of the EU/EEA]
This article is for general information purposes only and does not constitute legal, or other professional advice. We would advise you to seek professional advice before acting on this information.