Capital Gains Tax Changes on Second Homes
Tuesday 03 September 2013
The new rules on capital gains tax on second homes sales have been officially published and are operational with effect from 1st Sept.
The changes are much as we reported in our last Newsletter, with an easing of the period over which a reduction in the tax is granted, but with the actual rate of tax remaining the same.
The French Parliament has yet to vote on the issue, but the government does seem to have adopted the stance that this is a formality!
In summary the proposed changes are as follows:
Capital Gains Tax
A reduction from 30 years to 22 years over which complete exemption from the tax is granted, with tapered relief from the 6th year of ownership.
The method by which this is achieved is a discount of 6% a year from the 6th year, and 4% in the final 22nd year.
This means that a property owned for 10 years would be eligible for a 30% discount on the tax, and one held for 15 years would be granted a 60% discount.
Social Charges (Prélèvements Sociaux)
By contrast, no change in the period over which complete exemption from social charges is granted, which remains at 30 years.
During the 30 years, tapered relief is granted by way of a discount of 1.65% per year from the 6th to 21st year of ownership, 1.6% for the 22nd year, and 9% for the 23rd to the 30th year.
This means that a property owned for 10 years would be granted a 8.25% discount on the social charges, and one held for 15 years would be granted a 16.5% discount.
An additional supplementary discount of 25% for properties sold between 1st September 2013 and 31st August 2014. The discount applies to both capital gains tax and the social charges.
The above dates relate to signing of the deed of sale (acte authentique), not the sale and purchase contract. So a sale and purchase contract signed before 1st September 2013 but with completion after this date would not come within the new rule.
Supplementary Capital Gains Tax
This tax will continue to apply on gains over €50,000, although it will also be eligible for the 25% discount.
In addition, calculation of liability to the tax will depend on the number of owners, with the total gain being divided between the owners. Accordingly, two joint owners who make a €99,000 capital gain would not pay the supplementary tax.
In most circumstances non-residents are obliged to appoint a tax agent (représentant fiscal) to validate their tax charge. We say more about this obligation and the potential costs and difficulties for owners at Fiscal Representatives for Non-Residents.
We can illustrate the new rules by way of an example, with the assistance of an automatic calculator.
A property purchased by an EEA resident couple in August 2005 for €200,000 and sold 9 years later in August 2014 for €260,000, giving a gross capital gain of €60,000. After applying the standard allowances for transaction costs and building works the gross capital taxable gain is €14,000. With further reductions in liability for duration of ownership, as well as the 25% supplementary discount, the net tax payable (capital gains and social charges) is €10,964.
If you would like to obtain an approximate indication of the capital gains tax and social charges you would pay on the sale of your property under these new rules, then drop us a line at email@example.com and we will endeavour to provide you with a non-binding estimate.
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