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French Taxation

French Capital Gains Tax Relaxation on Homes

Wednesday 01 April 2009

With French property owners finding it difficult to sell their homes, there is to be a temporary relaxation in French capital gains tax.

Regular readers will be aware that no capital gains tax is payable in France on the sale of a property in France that you occupy as your principal residence.

However, circumstances sometimes arise where an owner decides to vacate the property prior to sale.

This may be for professional reasons, those of health, or in the event of death of a partner. It may also simply be that they have purchased another property into which they wish to relocate.

In order to cope with these circumstances, the French tax authority normally accept that, even though you may not actually occupy the property at the time of the sale, an exemption from capital gains tax will still be granted for up to one year after you vacate the property.

In the light of the current conditions in the housing market, the French government recently announced that the one year grace period would be extended to two years for those properties sold in 2009 and 2010.

This concession applies provided the property was occupied by you up to the time it was placed on the market. Accordingly, if you vacate a property to live elsewhere, but without having placed your former home on the market, you risk losing the concession, or at least the full entitlement. You could well be asked by your local tax office to prove the date on which you placed the property on the market.

The exemption also only applies provided the property was not rented out during the year, or that other members of the family were left in occupation whilst it was on the market.

A similar exemption also operates in relation to a couple in the process of divorce or separation, where one or another of them may not be occupying the property when it is sold. In these cases, both parties would continue to benefit from a capital gains tax exemption.

In the past, the tax authority have normally required that the exemption only applies for one year following divorce or separation, but it is likely divorcing couples will also be able to benefit from the recent relaxation in the rules. In order to avoid any later difficulties with the tax authority, you would be best advised to discuss your circumstances with them.

You can read more in our guide to Capital Gains Tax in France.

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