When you sell a private property in France, which is your main home and your fiscal residence, you do not pay any capital gains tax (CGT), or “impôt sur les plus values” as it is called in French, and this independently of your nationality. A French tax return which has the property’s address on it is usually sufficient to establish this. Note that simply paying taxe d’habitation (property tax) and taxe foncière (rates) on the property in France does not constitute fiscal residence in France. If it is a secondary home CGT is generally due if you have owned the property for less than 30 years, even if you are not a French resident.
If you are a non French resident, but have had fiscal residence in a property in France for at least 2 years (not necessarily immediately prior to the sale) you are exempt from CGT on the sale of that property, (limited to one sale every 5 years) provided you are a member of the EU or fiscally resident in a country with an appropriate tax treaty with France, and again French tax returns are a good proof. Under certain conditions of revenue, retired people may also be exempt, as is property sold for under 15,000€.
The basis on which CGT is calculated is the difference between the sales price (deductions made for any french estate agents or other professional fees paid by the seller) and the purchase price increased by the professional fees incurred on acquisition, typically those of the notaire. If no documentation is available an all-in amount of 7.5% of the purchase price is used to cover these acquisition costs.
After 5 years of ownership an amount of 15% of the purchase price can be deducted from the capital gain to allow for improvements, even if none have been carried out. Alternatively if you have invoices from registered contractors available to cover building, rebuilding, extension and improvement works they can be deducted instead, provided they have not already been taken into account for income tax purposes. Maintenance expenses are not allowed, nor are improvement expenses carried out by non-registered workers (typically a do-it-yourself owner). Obviously the tax code tries to define clearly what is meant by building, rebuilding, extension and improvement works but there is often room for doubt.
Note the date from which the length of ownership is calculated is the date of signature of the final sales document or “Acte Authentique”. This is true even if the property is bought before construction is finished under a VEFA agreement.
With the tax reform of August 2013 this chargeable gain is subject from 1/9/2013 to the application of two taxes which, for both French, and non-French residents resident in the EU, are 19% (income tax or IR) and 15.5% (social security charges or PS) . Obviously what you actually pay may depend on any applicable Double Tax Treaty. If you are not a resident of a EU country the IR rate goes up to 33.33%. Also there are exceptions: for example Norway while being European is non-EU but its citizens are subject to only the basic IR rate of 19%. The same applies to Iceland. As part of the battle against tax havens or “paradis fiscaux” people resident in certain countries listed as fiscally non-cooperative are taxed at an IR rate of 50%.
Before applying these two tax rates a reduction is applied to the chargeable gain varying with length of ownership, the reductions being different for the calculation of IR and PS (in the past the reduction was the same for both taxes but simplification does not appear to be the aim of the present government!). For IR, the reduction is 6% per year after the 5th year and up to the 21st, then 4% for the 22nd year, so after the 22nd year there is no IR to pay on the capital gain. For the PS its 1.65% per year after the 5th year and up to the 21st, 1.6% for the 22nd year, then 9% up to the 30th year after which time there is no CSG to pay on the capital gain.
The following table illustrates these reductions
For “large” capital gains an additional tax must be applied, the rate varying with the net capital gain subject to IR. Details of this additional can be seen on this link: http://www.coastandcountryfrance.com/property_news/personal-blog/increase-in-capital-gains-tax-on-the-sale-of-a-french-secondary-home/
For all property sales for which the final sales documents (Acte Authentique) is signed between 1/9/2013 and 31/8/2014 a special reduction of 25% is applied to the net chargeable gain after application of the reductions for length of ownership. During this the additional taxes are applied
As an illustration of how the calculation of CGT works consider a sale where the chargeable gain is 200,000€ and the property has been owned for 14 years
The net capital gain (IR) after deduction for length of ownership is 200,000 x 46% = 92,000€ and after the 25% special reduction = 69,000€ so the tax at 19% = 13,110€
The net capital gain (PS) after deduction for length of ownership is 200,000 x 85.15% = 170,300€ and after the 25% special reduction = 127,725€ so the tax at 15.5% = 19,797€
The additional tax is based on 69,000€ and so is 69,000 x 2% = 1,380€
Total Capital Gains tax to pay is 13,110 + 19,797 + 1,380 = 34,287€
The notaire calculates the capital gain in advance of the signature of the final sales agreement and deducts the amount from the sales proceedings. In the case of the seller being a non-resident he must use a fiscal representative, who basically provides the French government with an insurance policy that covers the incorrect calculation of CGT. This is paid for by the seller and the fee charged is generally just under 1% of the sales price. While the notaire may ask for clarification on any deductions for improvements, the fiscal representative also has to be satisfied of the validity of such deductions in the case of a non-resident. Recently we have also had cases where demands have been made for bank statements justifying payment of the invoices produced. This undoubtedly reflects the increasing drive of the tax authorities to stamp out illicit financing and the role of tax havens mentioned above. However it does mean that bank statements theoretically need to be kept for 30 years if the house is not sold before.
Please note that while every effort has been made to ensure the accuracy of this article we are not experts in this complicated field and before taking any decisions in the matter the appropriate adviser should be contacted.