Former residents of France are to benefit from a more generous exemption from capital gains tax on the sale of their property.
The law on the liability of former residents of France to capital gains tax on the sale of property is one that is regularly being tested in the French courts.
One of the major points of contention concerns the lack of parity between residents and non-residents on the sale of their former principal home, if vacated prior to sale.
Insofar as residents are concerned, the exemption from capital gains tax still applies, provided the sale takes place within a 'normal period'.
Just what is a ‘normal period’ is not defined in statute, but case law has judged that it may be up to two-years after vacating the property, provided all reasonable steps were taken to dispose of it.
However, this exemption is only available to those who remain fiscally resident in France.
Thus, if you vacate the main home and relocate abroad, the subsequent sale of the property will not benefit from this exemption.
In 2014, a couple challenged this doctrine, which they considered was contrary to the principle of equality of treatment enshrined in the French constitution.
The case finally finished up in the Conseil constitutionnel which ruled that to discriminate on this basis was not unconstitutional.
More recently, the Court of Appeal sitting in Versailles ruled in a case that the imposition of capital gains tax on a former resident was contrary to the free circulation of capital enshrined in Article 63 of the Treaty, which states that: "all restrictions on the movement of capital between Member States and between Member States and third countries are prohibited".
Faced with the barrage of litigation, last month the government introduced an amendment to the finance bill for 2019 currently proceeding through the parliamentary process.
Under the amendment the government propose to put both residents and non-residents on the same legal footing, by stating that a non-resident who sells a property that was their main residence can obtain complete exemption from capital gains tax on the double condition:
- that this transfer be made no later than 31 December of the year following in which the seller moves their tax domicile outside France;
- and that the property has not been made available to third parties, free of charge or against payment, between such transfer and the transfer.
This change will be operative from any sale taking place from 1st Jan 2019. The exemption will apply irrespective of nationality or country of residence, in line with a recommendation of a recent government sponsored report on the international mobility of residents.
The law already grants former residents substantial concessions against liability to capital gains tax, on condition that they can demonstrate at least a continuous period two years of tax residence in France prior to the sale.
Although normally only considered to apply to EEA nationals, the administrative regulations suggest it applies to all nationalities, provided:
- 'ils peuvent se prévaloir du bénéfice d'une clause conventionnelle de non-discrimination ;
- ils sont dans une situation identique à celle où un national de France pourrait prétendre à une exonération de plus-value immobilière sur le fondement du 2° du II de l'article 150 U du CGI.'
However, the exemption is up to a maximum gain of €150K (€300K for joint owners), and a property held via a property company (Société Civile Immobilière - SCI) does not benefit from the exemption.
This exemption is available for up to 5 years after leaving France, a period that the government proposes to increase to 10 years from 2019.
Under the proposed change it will not be possible for non-residents to benefit from both of the existing and proposed exemption provisions, although both will be available.