11. French Capital Gains Tax
- Scope of the Tax
- Exemptions on Sale of Property
- Allowable Costs on Sale of Property
- Shares and Personal Possessions
- Taxation of Building Land
- Fiscal Representative for Non-Residents
- Sale of Property Abroad
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 more than a few properly understood it all), so it is imperative you take good professional advice before you sign any sale contract.
Nevertheless, since January 2018, and for contracts signed up to 31st Dec 2020, relief against CGT applies on the sale of building land in areas of housing stress*, granting an exemption of 70% on the gain, provided there is a commitment by the buyer to the building of a new home(s) with 4 years. You will need to discuss the details of this concession with your notaire, as strict conditions apply.
*Zones Tendues : Ajaccio, Annecy, Arles, Bastia, Bayonne, Beauvais, Bordeaux, Draguignan, Fréjus, Genève-Annemasse, Grenoble, La Rochelle, La Teste-de-Buch-Arcachon, Lille, Lyon, Marseille - Aix-en-Provence, Meaux, Menton-Monaco, Montpellier, Nantes, Nice, Paris, Saint-Nazaire, Sète, Strasbourg, Thonon-les-Bains, Toulon, Toulouse.
Otherwise, the following rules apply.
i. Capital Gains Tax
Since January 2018 the sale of building land is subject to capital gains tax, including social charges, at the rate of 36.2%.
This sum comprises capital gains tax at the rate of 19% plus 17.2% social charges, although as previously stated, EEA residents not in the French health system are not liable for the social charges, although they pay the 7.5% solidarity tax.
You can read more at Reform of Social Charges.
There is 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. The table uses social charges at the standard rate, not the solidarity tax.
Table: Capital Gains Tax Allowances for Duration of Ownership
|Ownership Period||Capital Gains Tax Allowance||Social Charges Allowance|
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.
You need to take the advice of your notaire on ways it may be possible to structure the sale. One approach is by dividing the title of the property and selling the reversionary interest in the first instance, and then later sale of the usufrut to the same buyer. The sales would be tax exempt.
This process is called démembrement de propriété into nue-propriété and l'usufruit.
You need to take great care on this approach, as the tax authority may rule it illegal if they consider it a tax evasion strategy.
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.
The same approach on démembrement de propriété applies to this tax, but with the same level of risk.
If you undertake preparatory works (travaux de viabilisation) on the land (access road, drainage etc) then you may be obliged to charge VAT on the sale price. This obligation applies, notwithstanding that you may not be business registered. You need to take professional advice from your notaire on this point.
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