11. French Capital Gains Tax
- 11.1. Capital Gains Tax Rates
- 11.2. Allowances on Sale of Property
- 11.3. Allowable Costs on Sale of Property
- 11.4. Shares and Personal Property
- 11.5. Sale of Building Land
- 11.6. Your Former Home
- 11.7. Fiscal Representative for Non-Residents
11.2. Tax Allowances on Sale of Property
There are a number of important exemptions and allowances from French capital gains tax on the sale of land and buildings.
- i. Main Residence in France
- ii. Duration of Ownership
- iii. Former Residents of France
- v. Low Value
- vi. Elderly/Disabled Persons in France
- vii. Divorce/Separation in France
i. Main Residence in France
By far the most important exemption from capital gains tax in France concerns the family home.
In order to qualify the property must have been occupied by you on an habitual basis up to the time of the sale, although you need not actually be occupying it at the time of sale.
This concession may be available for up to a year, but you will need proper reasons.
In order to benefit from this exemption you are not permitted to let out the property during the sale period, or to leave family members in occupation.
The law does not state how long you need to have occupied the property for it to be considered as your principal home.
As a rule of thumb, in order to escape the attention of the tax authorities it is generally accepted that eight months is a minimum period to be accepted as your principal home. There are, however, concessions on this rule, e.g. death of a spouse, job relocation, force majeur.
The tax authority will likewise normally expect you to have made an income tax declaration at the address and that you are able to produce a taxe d’habitation (rates bill) in your name, in order for it be considered to have been your principal residence.
If you live in two properties in the year, then you will similarly need to supply a copy of the taxe d’habitation in order to demonstrate residence. It may well also be preferable to have previously notified the tax office which of the two properties you consider your principal residence.
ii. Duration of Ownership
If the property has been owned by you for fifteen years then no capital gains tax is payable on sale, even though it is not, and may never have been, your principal home.
Between six and fifteen years an allowance of 10% per year of the gain is granted, so that, by the end of the fifteen years, complete exoneration arises.
Thus, if you sell a property after having owned it for a full 10 years, you will be granted an allowance of 50% against your liability to capital gains tax.
No exemption is available for a sale under six years.
Although the 15 year rule is a fairly simple one to operate, it can get complicated where part of the property is inherited and then later sold, as the rule will be applied to each part owner on their own circumstances.
Thus, a surviving spouse will granted exoneration from capital gains tax if they later decide to sell if it is their principal home, or they have owned it for at least 15 years, but their children may not have owned it on the same basis, in which case they will be liable. The liability will arise on the difference between the declared value on death of the first spouse, and the actual later sale value.
With effect from 1st February 2012 the 15 year rule is replaced by a less generous one over 30 years.
.
A summary of the new allowances is as follows:
- No allowance for the first five years of ownership.
- Between six and seventeen years of ownership: 2% allowance per year.
- Between eighteen and twenty-four years of ownership: 4% allowance per year.
- Between twenty-five and thirty years of ownership: 8% allowance per year.
The 1st February date means is that the deed of sale - the
acte authentique - would need to be signed by 31st January, which implies that the sale and purchase contract would need to have been signed by 30th November, due to the two months normally needed to complete the formalities.
For sales being undertaken through a French property company (
Société Civile Immobilière – SCI) the applicable date remains 25th August 2011.
In the following table we illustrate the difference in the allowances that will be available under the new rules with the allowances in force until February 2012.
As can be seen, at the end of 15 years ownership, for instance, instead of 100% exemption, under the new rules the allowance is 20%.
The table then shows the effective net tax rates from February 2012 for those who are resident in France, for EU residents, and for those from outside of the EU,
after taking into account the allowance for duration of ownership.
With effect from February 2012 the gross tax rate for residents of France is 32.5%, while for EU residents it is 19%. For those from outside the EU it is 33.3%.
For example, at the end of 15 years, for a resident in France the effective net rate of tax is 26% (80% X 32.5%); for a non-resident from within the EU, the tax payable is 15.20% (80% X 19%); those resident outside of the EU would pay 22.6% (80% X 33.3%).
Table: Capital Gains Tax
| 1 Year |
0% |
0% |
32.5% |
19% |
33.33% |
| 2 Years |
0% |
0% |
32.5% |
19% |
33.33% |
| 3 Years |
0% |
0% |
32.5% |
19% |
33.33% |
| 4 Years |
0% |
0% |
32.5% |
19% |
33.33% |
| 5 Years |
0% |
0% |
32.5% |
19% |
33.33% |
| 6 Years |
10% |
2% |
31.85% |
18.62% |
32.66% |
| 7 Years |
20% |
4% |
31.2% |
18.24% |
32% |
| 8 Years |
30% |
6% |
30.55% |
17.86% |
31.33% |
| 9 Years |
40% |
8% |
29.9% |
17.48% |
30.66% |
| 10 Years |
50% |
10% |
29.25% |
17.1% |
30% |
| 11 Years |
60% |
12% |
28.6% |
16.72% |
29.33% |
| 12 Years |
70% |
14% |
27.95% |
16.34% |
28.66% |
| 13 Years |
80% |
16% |
27.3% |
15.96% |
28% |
| 14 Years |
90% |
18% |
26.65% |
15.58% |
27.33% |
| 15 Years |
100% |
20% |
26% |
15.2% |
26.66% |
| 16 Years |
100% |
22% |
25.35% |
14.82% |
26.00% |
| 17 Years |
100% |
24% |
24.7% |
14.44% |
25.33% |
| 18 Years |
100% |
28% |
23.4% |
13.68% |
24% |
| 19 Years |
100% |
32% |
22.1% |
12.92% |
22.66% |
| 20 Years |
100% |
36% |
20.8% |
12.16% |
21.33% |
| 21 Years |
100% |
40% |
19.5% |
11.4% |
20% |
| 22 Years |
100% |
44% |
18.2% |
10.64% |
18.66% |
| 23 Years |
100% |
48% |
16.9% |
9.88% |
17.33% |
| 24 Years |
100% |
52% |
15.6% |
9.12% |
16% |
| 25 Years |
100% |
60% |
13% |
7.6% |
13.33% |
| 26 Years |
100% |
68% |
10.4% |
6.08% |
10.67% |
| 27 Years |
100% |
76% |
7.8% |
4.56% |
8% |
| 28 Years |
100% |
84% |
5.2% |
3.04% |
5.33% |
| 29 Years |
100% |
92% |
2.6% |
1.52% |
2.67% |
| 30+ Years |
100% |
100% |
0% |
0% |
0% |
Example: A couple resident in France purchase a property in August 2003 and sell in March 2012, 8 years after they purchased it. They did not carry out any significant works to the property but seek to reduce their liability to tax by using the major works cost allowance that is available.
| Purchase price |
€192,000 |
| Sale price |
€298, 000 |
| Acquisition Cost |
7.5% (€14,400) |
| Standard Cost Allowance |
15% (€28,800) |
| Therefore |
€298,000 - €235,200 = €62,800 |
| 8 Years Ownership: 6% allowance |
€62,800 - €3,768 = €59,032 |
| Tax |
€59,776 x 32.5% = €19,427.20 |
iii. Former Residents of France
Non-residents are not subject to the 13.5% social charges element of capital gains tax, under any circumstances.
In addition, no capital gains tax is payable on a property owned by a non-resident of France, provided you can demonstrate that you have previously been fiscally resident in France for a continuous period of at least two tax years prior to the sale.
You would also need to demonstrate that the property had been available for your use since 1st January in the year preceding the sale. For example, if you sell your property in January 2012, the property must not have been let since January 2011. In short, that the property had been your principal home in France.
This is a provision in the law that has been created primarily for French residents who retire abroad, but it equally applies to international buyers who decide to return home.
The best form of evidence for demonstrating your prior residence is through tax returns submitted in France from the address of the property.
The non-resident must be a member of the EU or living in a country that has signed an appropriate tax treaty with France.
This concession is limited to the sale of only one property, and on condition that it was your only property in France at the time of the sale.
You are also obliged to appoint a 'fiscal representative' if the sale is over €150,000. This person will be involved in the calculation of the tax liability.
Needless to say, this rule does not exonerate the vendor from potential liability to capital gains tax in their actual country of residence!
If you do not meet the two year rule, you are liable to capital gains tax on the usual terms.
iv. Low Value
No capital gains tax is payable if the sale price of the property is less than €15,000, whatever the gain on the sale price.
However, in these circumstances there is a liability to income tax on the proceeds.
Where the property is held in joint ownership then this threshold may be multiplied by the number of owners.
v. Elderly/Disabled Persons in France
Those resident and of retirement age, or registered disabled, are exempt from the tax, provided their annual income does not exceed a maximum amount, and they were not liable for wealth tax (ISF) in the year preceeding the sale.
The reference period for determining your income is two years prior to the sale.
Accordingly, for a property sold in 2011, it will be your income earned in 2009 that is used to determine your entitlement to this concession.
The maximum income threshold for 2011 is €9,876 for an adult, and €15,150 for a couple, as defined in your income tax notice (the revenu fiscal de référence) for 2010.
An elderly person admitted to a 'medicalised' retirement home is also exempt from capital gains tax on the sale of their home for two years from being accepted into the home. The concession is also subject to the same income and wealth tax criteria above.
The same exemption applies to a disabled person admitted to a specialised establishment.
vi. Divorce/Separation in France
There is an exemption for those couples in the process of separation or divorce, one of whom may not be living in the family home (résidence principale) when it is sold.
Where, notably one of the parties remains in the property until it is sold, both benefit from exemption from capital gains tax.
This concession also operates in the case of those in a civil partnership, as well as those merely living together in 'free union', although in the latter case the couple would need to demonstrate more than they were simply co-habiting in the same property.
The exemption also applies in the case of a home under construction or renovation, where the couple were not living in it, but where they are able to provide satisfactory proof that it was being constructed or renovated for use as their principal home.
The position taken historically by the French tax authority has been that they will not allow an indefinite period for the property to be sold.
As a general rule, they have stated that one year from the official date of the divorce/separation is permitted.
This maximum period may be varied, depending on the circumstances of the case, as well as the local market situation.
In particular, where one of the parties has been ordered by the court to stay away from the former family home, then the courts have determined that both parties retain their right to exemption from capital gains tax, provided at least one of them remains in the property, even though the property was not sold for five years after the former spouse was ordered out of the property.
In recent years, the tax authority have been less rigid on the one year rule, and seem to be more willing to examine each case on its merits, if only because of the complications surrounding the divorce settlements and the delays that may be incurred in putting the property on the market, if at all.
If matters are more straightforward in the divorce settlement then in examining the period of grace they will allow, the tax authority will require evidence of marketing of the property, and that it is being offered at a reasonable price.
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Allowable Costs on Sale of Property
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