A new tax has been introduced on the first sale of land that becomes zoned for construction, on top of two taxes already in place.
The taxe sur la cession de terrains nus rendus constructibles follows a similar tax that was introduced in 2007, designed to assist local councils meet the infrastructure costs associated with the zoning of new building land.
Although the new tax has a slightly different objective, that being to reduce the level of speculation on agricultural land, the end result for the taxpayer is the same - an increase in the taxation of newly zoned building land.
The tax applies in equal measure to any bare land that is not already in a zone constructible.
Zoning of land for development normally occurs following the approval of a new or modified local plan, whether plan local d’urbanisme or carte communale.
If land you own is already within a zone constructible then you can probably breath a sigh of relief, for the tax will only be 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.
It will be 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.
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.
The proceeds of the tax will go towards providing funding support for young farmers.
The operational aspects of this tax have yet to be finalised, so has yet to be implemented.
Other Taxes Also Payable?
The problem for those who will face this tax is that it is not the only tax they may pay on the sale of building land.
In 2007, the government granted local authorities the discretionary power to impose their own tax on the first sale of newly zoned development land.
This local capital gains tax has been introduced by thousands of councils across the country, and operates on a similar basis, as we outlined in our Newsletter article French Taxes on Sale of Building Land.
Although no detailed guidance has yet been issued by the government, the new tax appears to be cumulative with this tax.
Moreover, neither does it appear that these taxes will be taken into account in the calculation of capital gains tax - impôt sur les plus values. That is to say, the base figure for determining how much capital gains tax is payable is the gross sale price, not the net proceeds after deduction of either of the above taxes. That would certainly make sense, as there would otherwise be no point in introducing the tax.
Once again, we await further clarification from the government on just how it all comes together.
Accordingly, those of you thinking of making a quick windfall on the zoning of new land you own need to take professional advice on the application of these various taxes.