11. French Capital Gains Tax

1. 11.1. Scope of the Tax
2. 11.2. Exemptions on Sale of Property
3. 11.3. Allowable Costs on Sale of Property
4. 11.4. Shares and Personal Possessions
5. 11.5. Taxation of Building Land
6. 11.6. Fiscal Representative for Non-Residents

11.1. Scope of French Capital Gains Tax

11.1.1. Definition

Capital gains tax in France is called impôt sur les plus values and is a tax payable on the sale of land or buildings, on shares, and certain other personal property, subject to any exemptions, allowances and deductions that are available.

We can distinguish three different terms used, depending on the type of transaction:

• Land and Buildings - Impôt sur les plus values immobiliere.
• Personal Property - Impôt sur les plus-values biens meubles.
• Shares - Impôt sur les plus-values mobilières.

11.1.2. Scope

Both individuals and companies are liable for capital gains tax, although there are different rules that apply.

In this review we focus on capital gains tax as it applies to individuals not as it applies to property held within a company, such as a Société Civile Immobilière (SCI) or to business professionals, such as those who buy and sell property as a business.

However, you can read more about the taxation and other implications of buying and selling property held in an SCI in our Guide to Société Civile Immobilière (SCI).

The sale of real estate is fully liable to capital gains tax, including exchange properties and those sold on the basis of a life annuity rather than a capital sum.

Conversely, properties that are gifted are not liable (although they may be subject to gifts tax) and property that is inherited is similarly exempt (although it is subject to inheritance tax rules).

11.1.3. Territoriality

In general, most countries have a taxation treaty with France under which capital gains on the sale of property in France is taxed in France.

The applicable tax rate for gains on real estate will depend upon your country of residence for taxation purposes.

The various rates of capital gains, depending on your residency, are as follows:

1. i. Resident of France

If you are a resident of France then the applicable tax rate is 32.5%.

This sum comprises capital gains tax at the rate of 19%, plus 13.5% social charges. The social charges will increase to 15.5% on 1st July 2012, giving a total rate of 34.5%.

1. ii. EU Resident

If you are not resident in France, but you are resident in the EU, then the applicable tax rate is 19%, as no social charges are payable.

The rule equally applies to residents of Norway, Island and Liechtenstein.

You should note, however, that you may also be liable for capital gains tax in your home country. The extent of the liability will depend on the terms of any tax treaty that exists.

In relation to those from the UK, then a liability does arise in the UK, but with any French tax paid set off against tax that may be due in the UK.

1. iii. Non-Resident

Those who are neither resident in France nor the EU pay capital gains tax at the rate of 33.3%.

However, if you are based in a tax haven that does not have a tax agreement with France the rate that applies is 50%.

Again, as with EU residents, you may also be liable in your home country.

In all cases of the sale of property in France the tax is applied at the time of the sale in the offices of the notaire, and will be deducted from the sale proceeds before the cheque is handed over.

Non-residents (whether from inside or outside of the EU) are also required, in certain circumstances, to appoint a tax agent on the sale of property, about more of which you can read at Fiscal Representatives.

11.1.4. Property Outside of France

If you become permanently resident in France, and then subsequently sell your former home or other property, you could become liable for French capital gains tax on the sale proceeds.

Whether you are liable will once again depend on the terms of any double taxation treaty between France and your home country.

In the case of former residents of the UK resident in France a tax treaty signed between France and UK, operative from 1st January 2010, makes you liable for capital gains in France on the future sale of your former home.

However, you will be entitled to the same relief on French capital gains tax as you would otherwise receive if the property was located in France. On that basis you will be entitled to relief based on the duration of ownership.

The 2010 treaty overturns a previous rule in which there was an exemption from capital gains tax by the UK tax authorities on the disposal of the main residence for a period of five years, and which was also exempt from capital gains tax in France.