French Capital Gains Tax – 2016

Francois Hollande did not do any favours for those who want to sell their second home in France.  The effective rate of tax on most sales is now 34.5%.  This is made up of tax on capital gain (plus-value) of 19% and a social tax of 15.5%.  The EU ruled that this tax was illegal when applied to non-residents who paid into another social security regime, eg in their home country, leading to refunds being paid for a 2-year period.  However, Mr Hollande found a way around this by re-allocating the tax and therefore the rate is 34.5% again for residents and non-residents alike.

What is your capital gain?
Simply put, your capital gain is the difference between the amount you are selling your property for and the amount you bought it for.  You deduct the purchase price from the selling price and that is your capital gain.  However, it is not quite that simple.

For the purposes of calculating capital gains tax (plus values) both the purchase and selling prices are adjusted thus:

Purchase price
Take the purchase price and add on the cost of the expenses you incurred at the time of purchase.  You can use the real costs of notaire’s fees and agent’s fees providing you have documentary evidence to support this.  Alternatively, you can apply an allowance of 7.5% of the purchase price.  Sometimes, it is more advantageous to apply this allowance, even if you do have documentary evidence.

You can also add on the cost of works which can be described as construction, reconstruction or a new element of comfort such as a new bathroom.  In order to offset these works, you will need to provide invoices from French-registered builders and proof of payment usually in the form of bank statements.  Alternatively, an allowance of 15% can be applied providing the property has been owned for at least five years.

Selling price
Take the selling price and deduct the expenses associated with the sale.  These include the cost of diagnostics such as lead, termites and asbestos and agent’s fees.

Capital gain
For the purposes of calculating the tax payable, the basic capital gain is reduced by an allowance which is applied depending on the length of time the property has been owned.  The allowances are applied as follows:

For the capital gains tax part:

  • 6% for each year from the 5-21st year of ownership
  • 4% for the 22nd year of ownership

Once the capital gain amount has been reduced by this allowance, the resulting figure is used to calculate the tax.

For the social tax part:

1.65% for each year from the 5th -21st year of ownership

1.6% for the 22nd year of ownership

9% for each year from 22nd-30th of ownership

Once the capital gain amount has been reduced by this allowance, the resulting figure is used to calculate the tax.

 

Tax rates and types

Three types of tax are applied:

Tax on plus-value at a rate of 19%

Social tax at a rate of 15.5%

Surtaxe (an additional tax) payable on a sliding scale as follows, if the net gain in more than 50,000 euros.  It is necessary to use the formula shown to arrive at the correct calculation:

Amount of capital gain Formula for calculating surtax  
50 001 –   60 000 2 % PV–   (60 000 – PV) × 1/20
60 001 –   100 000 2 % PV
100 001   – 110 000 3 % PV–   (110 000 – PV) × 1/10
110 001   – 150 000 3 % PV
150 001   – 160 000 4 % PV–   (160 000 – PV) × 15/100
160 001   – 200 000 4 % PV
200 001   – 210 000 5 % PV–   (210 000 – PV) × 20/100
210 001   – 250 000 5 % PV
250 001   – 260 000 6 % PV–   (260 000 – PV) × 25/100
Over   260 000 6 % PV

NB  This surtax does not apply to building plots.

Exemptions from tax on plus values

Selling your main home
If the property you are selling is your main residence, you will be exempt from paying capital gains tax.  The definition of main residence is the place where you are habitually resident for most of the year, where your family resides and/or where your professional interests are.  If it is not clear where your main residence is, it is a question of fact to be decided by the French tax administration and not a question of choice.

First sale of a property in France in order to buy your main residence
If you are selling a property which is not your main residence but intend to use the proceeds to buy a main residence, the sale will be exempt from capital gains tax providing that all or part of the sale price is used within two years of the sale to buy your main residence.  This exemption is conditional upon the seller not having owned either directly or indirectly (eg through a company) his main residence in the four years preceding the sale.  The property being sold must be one classified as a dwelling.

© France Legal 2016