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11. French Capital Gains Tax

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

11.5. French Capital Gains Tax on Building Land

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

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

I. Capital Gains Tax

The sale of building land is subject to capital gains tax (including social charges), but on slightly different terms to that of residential property.

In 2013 it was the intention of the French government to abolish the discount for duration of ownership on the sale of building land (to encourage owners to sell more quickly), but this proposal was thrown out by the Constitutional Council.

Accordingly, there is no change in the law in 2014 for the taxation of building land, so the discount applicable in 2013 remains.

This translates as tapered relief against both capital gains tax and social charges over a 30 year period, at which point no tax is payable.

The basis on which this occurs is as follows:

  • No allowance for the first 5 years of ownership.
    • Between 6 and 17 years of ownership: 2% allowance per year.
    • Between 18 and 24 years of ownership: 4% allowance per year.
    • Between 25 and 30 years of ownership: 8% allowance per year.

A summary of the cumulative allowance over 30 years is shown below.

Table: Capital Gains Tax Allowances for Duration of Ownership

Ownership Period Capital Gains Tax Allowance Social Charges Allowance
1 Year 0% 0%
2 Years 0% 0%
3 Year 0% 0%
4 Years 0% 0%
5 Years 0% 0%
6 Years 2% 1.65%
7 Years 4% 3.30%
8 Years 6% 4.95%
9 Years 8% 6.60%
10 Years 10% 8.25%
11 Years 12% 9.90%
12 Years 14% >11.55%
13 Years 16% 13.20%
14 Years 18% 14.85%
15 Years 20% 16.50%
16 Years 22% 18.15%
17 Years 24% 19.80%
18 Years 28% 21.45%
19 Years 32% 23.1%
20 Years 36% 24.75%
21 Years 40% 26.40%
22 Years 44% 28%
23 Years 48% 37%
24 Years 52% 46%
25 Years 60% 55%
26 Years 68% 64%
27 Years 76% 73%
28 Years 84% 82%
29 Years 92% 91%
30+ Years 100% 100%

It is likely the French government will revisit this issue at some time in the future, when they have worked out a way of dealing with the constitutional objections.

The supplementary tax on large gains that applies to residential property (see previous pages) does not apply to building land.

However, in addition to the basic rate of capital gains tax two other taxes are potentially payable on the first sale of land that becomes zoned for construction.

In a parliamentary response in March 2011 the French government stated that these taxes are cumulative, as follows:

"Il résulte des dispositions combinées applicables à ces deux taxes que leur champ d'application se recoupe lorsque la cession porte sur des terrains nus situés sur le territoire d'une commune ayant institué la taxe mentionnée à l'article 1529 du CGI et devenus constructibles à la suite de leur classement, postérieurement au 13 janvier 2010, par un PLU ou un document d'urbanisme en tenant lieu, dans une zone urbaine ou dans une zone à urbaniser ouverte à l'urbanisation, ou par une carte communale, dans une zone constructible. Dans cette hypothèse, aucune clause de non-cumul entre ces deux taxes n'étant prévue, elles s'appliquent cumulativement au titre d'une même cession."

II. Taxe sur la cession à titre onéreux de terrains nus rendus constructibles

A tax on the sale of land which has been zoned for construction (Article 1605 nonies du CGI.)

The proceeds of this tax 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.

Accordingly, at the end of 18 years the land is exempt from the tax.

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 Commmuale Forfaitaire sur Terrains Nus Devenus Constructibles

In addition to the above tax, if you own land which becomes zoned for construction through a local plan local councils have discretion to impose a tax on the subsequent first sale of this land, to reflect the increased value of the land (Article 1529 du code général des impôts (CGI).)

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, 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 be exempt for capital gains tax.

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Next: Fiscal Representative for Non-Residents

Back: Shares and Other Property







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