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

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11.5. French Capital Gains Tax on Building Land

Several taxes are potentially payable on the sale of building land.

The interationship between all of these taxes is one we do not fully understand (frankly, we would be amazed if anyone property understood it all!), so it is imperative you take good professional advice before you sign any sale contract.

However, in a parliamentary response the French government has stated that all three taxes are cumulative!

i. Capital Gains Tax

The sale of building land is subject to the normal capital gains tax that is payable as occurs for residential property.

There are changes in the application of the rules for residential property applicable from March 2012, which we outlined in Section 11.2.

However, for building land, the applicable date for the introduction of the new tougher regime is 1st January 2013.

In addition to normal capital gains tax two other taxes are potentially payable on the first sale of land that becomes zoned for construction.

ii. Taxe sur les Terrains Devenus Constructibles

A tax on the sale of land which has been zoned for construction.

It is called taxe sur les terrains devenus constructibles and the proceeds are used to assist in the development of new young farmers.

Zoning of land for development normally occurs following the approval of a new or modified local plan, either a plan local d’urbanisme or carte communale.

The tax is applied on land zoned for construction after the 13th January 2010.

The tax payable is a form of capital gains tax, based on the difference between the sale price and the purchase price.

Where the purchase price is not known, then an estimated price is determined, increased by the rate of inflation since purchase.

The tax is levied on a progressive basis, related to the level of the capital gain, as follows:

• 0% where the capital gain is less than 10 times the purchase price;
• 5% where the capital gain is between 10 and 30 times the purchase price;
• 10% where the capital gain is more than 30 times the purchase price.

On the above basis, the tax will only be levied on those who realise a very substantial capital gain on the sale.

For example, land purchased for €20,000, then sold for €220,000 (following zoning of the land) creates a capital gain of €200,000. As this is 10 times the price of acquisition, the gain is taxed at 5%, i.e. €10,000.

The 10% rate would be applied on a marginal basis, not the whole sum.

Some relief is offered for those who hold on to the land, for the tax is reduced by 10% a year from the 9th year of zoning for construction.

So, for example, on land zoned for construction in 2011, the full amount of the tax is payable through to 2018.

Between 2019 and 2027 the tax is then reduced by 10% each year, and from 2028, the tax ceases to be payable.

The tax is also only payable on first sale of the land; if the new purchaser subsequently sells the land, the tax does not apply, although they may well be liable for normal capital gains tax.

Both residents and non-residents are liable for the tax.

iii. Taxe Forfaitaire sur les Terrains Rendus Constructibles

In addition to the above tax, if you own land which becomes zoned for construction through a local plan, then local councils have discretion to impose a tax on the subsequent first sale of this land, to reflect the increased value of the land.

This tax is variously called la taxe forfaitaire sur les terrains rendus constructibles (TFTC) or la taxe communale sur les cessions de terrains nus devenus constructibles.

It is payable by both residents and non-residents in equal measure, for all land becoming zoned for construction after 13 Jan 2010, subject to a decision of the council to levy the tax.

The tax is levied at the rate of 10% on two thirds of the selling price of the land, less VAT payable, transaction costs and cost of purchase. Accordingly, it is therefore only payable on the capital gains, at a rate of 6.6% of the sale value after costs.

If there is no clear acquisition price, then it is the estimated price at the time of acquisition increased by the rate of inflation.

The discretionary power of the local mairie can only be used on a general basis to all such sales by individuals, following deliberation and a decision by them to introduce the tax.

This tax only concerns the sale of land owned by individuals, not the activities of developers, who are taxed as part of the general system of business taxation.

There are a number of important exemptions from the tax, as follows:

• Land transferred free of charge to a family member;
• Land sold for less than three times the original purchase price;
• The sale of the land for less than €15,001;
• Sale of building annexes belonging to the owner;
• Land sold by an elderly or disabled person on a low income, who would otherwise benefit from exemption under capital gains tax.

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