Self-Build and French Capital Gains Tax
Friday 06 October 2017
What capital gains tax rules apply on the sale of a self-build home in France?
Perhaps not surprisingly, most international buyers of property in France buy an older existing property rather than plump for a new home; the charms of an old stone farmhouse are difficult to resist, they are generally great value for money, and available for immediate occupation.
However, a new home also has its attractions for some buyers, who may make seek a high standard of energy efficiency, a specific design or location, or who may not wish to undertake substantial maintenance or a renovation project.
There are also now many manufacturers who offer pre-fabricated homes that are relatively easy and inexpensive to construct.
So what happens when you decide to sell a new build property?
In the case of a new home constructed by a builder, broadly speaking, the same rules on capital gains tax apply as for an older property.
That is to say, there is complete exemption from the tax if the property is your principal residence, and a tapered exemption based on duration of ownership applies if it is a second home or letting property.
These same rules apply in relation to a self-build home, except that where the property is not your principal residence there are some specific rules to that apply.
In determining the capital gain, it is necessary to first of all separate the capital gain on the land and that on the house itself.
The capital gain on the land is the difference between the acquisition cost of the land, including legal fees and stamp duty, and its value at the time of the sale.
This calculation is one that can be made by the notaire, but it is equally possible to obtain a valuation from an agent that can be used in the transaction.
An allowance is then made for duration of ownership, from the date of the land acquisition.
In relation to the build costs, from the fraction of the sale value attributable to the house itself, all fees and taxes incurred in connection with the construction are deductible. That includes all planning and design costs.
Also deductible are the building material costs, but only against bone fide invoices.
Most importantly, the invoices need to state the address of
the property, as they may not be accepted by the notaire or the tax authority.
Accordingly, the invoice should either be made out to the address of the new property, or, if made out to your home address it must state on it the address of the new build property.
You cannot deduct the costs of your own labour. However, if you have used a contractor on site, who is business registered in France, then invoices are a deductible expense.
Only those self-build material costs up to completion of the works are deductible. That is to say, once building works have been completed you need to advise the tax authority, who will then also grant you two years relief from the taxe foncière.
After the completion date, later works are carried out to the property (extension, major improvements) will only be accepted if carried out by a registered contractor.
As with land an allowance is then made for duration of ownership, which commences with the commencement date of the works, which should be notified to the tax authority.
Where you are unable to produce invoices for materials, or you cannot produce all of them, then, provided you have owned the property for at least five years prior to sale you are entitled to otherwise deduct 15% of the land acquisition costs.
Property RenovationIn the case of an older existing property the tax authority
will not accept material only invoices for works undertaken. Only those carried
out by a registered business are acceptable.
However, if you are yourself a registered builder in France,
and you do the works yourself, it is possible to charge a 10% labour cost against the works. You would need to discuss with the tax authority.