Capital gains tax in France (namely impôt sur les plus values) is a tax payable on the sale of fixed assets (land or buildings) as well as on other movable assets (such as shares).
The tax is applied on the gain made by selling the property, i.e. the difference between the purchase price and the selling price. The tax is calculated at the time of the sale by the French Notaire and deducted from the proceeds of the sale.
The applicable tax rate depends on your country of residence, i.e.:
- If you are a French resident, the applicable tax rate is 32.5% (updated in 2011). This figure is composed of the capital gain tax rate itself (which is 19%) plus 13.5% of social charges;
- If you are an UK Resident, then the applicable tax rate is only 19%, as no social charges are payable. However, be aware that you may then be liable to capital gains in the UK following the declaration made in France (the French tax office is likely to pass on any information they have to the Inland Revenue, relating to your sale or other French tax affairs). Nevertheless, in accordance with the Anglo-French Double Tax Treaty, you can offset the amount of any French capital gain tax paid in France against the capital gains bill in the UK;
- Those who are neither resident in France nor the EU will be taxed at the rate of 33.3%.
However, there are a number of significant exemptions and allowances from French capital gains tax on the sale of immovable assets.
By far, the most important exemption concerns the principal residence. However, in order for the property to qualify as your principal residence, you need to have been occupying it on a habitual basis (although you do not need to be occupying it at the time of sale). The law does not state how long you need to have occupied the property but the tax authorities will require evidence to determine whether it was in fact used as your main residence (such as utility bills in your name, whether you have made an income tax declaration at this address, if you are able to produce a taxe d’habitation in your name, etc.)
The other exemption concerns the duration of ownership. However, this has been recently amended with the Law n°2011-1117 of 19 September 2011. Until now, a tax rebate of 10% on the capital gains was applied every year following the fifth year of ownership, which resulted in a total exemption of capital gains tax after 15 years. Under the new regime, with effect from 1st February 2012, the 15 year rule is replaced by a less generous one over 30 years. A summary of the new allowance is detailed as follows:
- No allowance for the first five years of ownership;
- Between six and sixteen years of ownership: 2% allowance per year;
- Between seventeen and twenty-four years of ownership: 4% allowance per year;
- Between twenty-five and thirty years of ownership: 8% allowance per year;
- Then, at the end of 30 years, there is a complete exemption.
The date 1st February 2012 means that in order to qualify for the previous allowances, the deed of sale (acte authentique), and not the first contract, e.g. compromise de vente, would need to be signed by 31st January 2012.
However, with regard to transfers of properties to an SCI (Société Civile Immobilière), the law is retrospective and is applied from 25th August 2011.
As mentioned above, the capital gain is determined by the difference between the sale and purchase price. However, some expenses can be taken into account in order to reduce the figure and this has not been amended with the new regulation. Those expenses concern:
- All the costs incurred by the seller, such as estate agent fees and other mandatory fees;
- The expenses related to the purchase price and incurred by the purchaser at the time of purchase such as Notaire’s fees and stamp duties (these are set at 7.5% of the purchase price but can be itemised if they are greater);
- All costs incurred by the owner associated with construction, extension or improvement to the property during his ownership.
As regards the latter, only building works carried out by a building professional are eligible (i.e. building professionals properly registered in France), and therefore if you have undertaken the works yourself, you cannot obtain tax relief on the costs. You will be required to produce invoices in support of any building costs. In the event that these are not available, provided you have owned the property for at least five years, the notaire is able to apply an allowance of 15% on the acquisition price against improvements to the property (but not to land).
In addition, there used to be a 1000 € allowance which was applied automatically but this is no longer available under the new Law.