The standard rate of French capital gains tax for real estate is 19%, but there are surcharges for higher gains and you also need to pay social charges. However, there are various exemptions and reliefs which could benefit you.
Whenever we buy an investment, even if it’s the family home, we always expect it to increase in value. It feels good to find we have made a good profit when we come to sell, but that satisfaction can be tempered somewhat when we realise how much tax we have to pay. So it is worth understanding now what capital gains tax (CGT) rules apply to you as a French resident, or if you own property there.
The tax rules, rates and allowances differ for gains made on movable and immoveable assets. This article by our tax partners Blevins Franks focuses on capital gains tax on property.
As always in France, you have two sets of tax to pay: capital gains tax and social charges.
The standard capital gains tax rate on the sale of real estate is 19%. Progressive surcharges are added for gains over €50,000, starting at 2% and rising to 6% for gains over €260,000.
This makes a potential top tax rate (including full social charges) of 42.2% – but there are various reliefs and exemptions so you should not have to pay this much tax.
The standard social charges rate for investment income, including property gains, is 17.2%. You could benefit from a new lower 7.5% rate if you are covered under the health care system of another EU/EEA country. This applies to residents who hold Form S1 and non-residents with gains or income arising in France.
Main home exemption
If you own one property and it is your family home, there is a good chance you do not have to pay any tax on the gain. But be careful to follow the rules correctly.
The main home is exempt from capital gains tax and social charges provided it is your habitual and actual residence at the time of sale. You would need to registered for and paying tax in France. It also applies to a home held in an SCI (French property holding company).
You could lose this relief if you sell after you move out, regardless of how long you previously lived in it. The exemption can however be extended by one year after you vacate your home, provided you put it on the market and it remains empty. You may be able to extend this period if you can prove you are doing your best to sell it.
This one-year extension will not apply if the owner leaves France and becomes tax resident elsewhere, though from 2019 the main home exemption will apply until the end of the year you leave France.
Other capital gains tax exemptions
Older residents may escape tax and social charges if they receive a state pension (or invalidity card) and they did not have a wealth tax liability in the year before the sale, and their taxable income that year was below a certain level (the 2016 income level for 2018 gains was €10,815 for the first part of a household, €2,888 for additional half parts).
You may also be exempt from tax when selling a property if you did not own a main home the previous four years and you re-invest the proceeds into one.
French nationals living abroad, and residents of EU countries, Norway and Iceland (or another state if the tax treaty allows it) may not have to pay capital gains tax if the sale is completed within five years of leaving France and they had been tax resident for at least two. This is not limited to the main home but is only available once and only for gains up to €150,000. It does not apply to property held in an SCI.
CGT relief - the longer you hold the property, the less tax you pay
If you do not benefit from these exemptions, a taper relief system will reduce tax and social charges for you.
From the sixth year onwards, capital gains tax is reduced by 6% per year (4% in year 22). This means there are no tax to pay after 22 years.
It is harder to escape social charges. From year six they are reduced by 1.65% per year (1.6% for year 22), then from year 23 the reduction increases to 9%. This give you total exemption after 30 years.
Calculating the gain
The taxable gain is the difference between the purchase (or probate value if inherited) and sale prices. You can deduct 7.5% acquisition costs; actual improvement expenses (with conditions) and qualifying loan interest not relieved against income. Take advice particularly if you are selling a let property as deducting loan interest can be complicated.
Paying capital gains tax in France
You need to use a notary when selling real estate. They will calculate the tax due, withhold it at time of sale, then pay the tax for you.
Where property is sold by a non-EU, Iceland or Norway resident, they must use a tax representative accredited by the French Tax Authority to make a capital gains tax declaration.
UK property gains
Don’t forget, if your main home is in France then your UK home may be regarded as a second home and therefore taxable. French residents selling UK property are liable to tax in both countries, but you will receive a credit in France for tax paid in the UK.
French wealth tax
Another property tax to consider is wealth tax, which continues to apply annually to the worldwide property of French residents – it was abolished for investments (shares, bonds, assurance vie etc) from January 2018. You are liable if your total property is worth more than €1,300,000.
When moving from one country to another it pays to examine your potential tax liabilities in both jurisdictions to establish when it is most tax-effective to sell and buy property. Timing a sale or a move could pay dividends.
As always with tax matters, things can be more complicated than they first appear, particularly where two countries are involved.
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