11. French Capital Gains Tax

1. Scope of the Tax
2. Exemptions on Sale of Property
3. Allowable Costs on Sale of Property
4. Shares and Personal Possessions
5. Taxation of Building Land
6. Fiscal Representative for Non-Residents
7. Sale of Property Abroad

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11.2. Exemptions on Sale of Property

There are a number of important exemptions and allowances from French capital gains tax on the sale of land and buildings.

Each on of these exemptions and allowances is considered below.

1. Main Residence in France
2. Duration of Ownership
3. Former Residents of France
4. Tenant Sale of Property
5. Low Value
6. Elderly/Disabled Persons in France
7. Divorce/Separation in France

In addition to those listed here there are also concessions for the sale of property to be used for social housing and on the sale of property in major redevelopment areas.

11.2.1. Main Residence in France

By far the most important exemption from capital gains tax in France concerns the family home.

This exemption applies equally to outbuildings (barns, workshops, garages) on the property, sold simultaneously with the main residence.

However, if you own a large estate you need to read our Newsletter article Estate Grounds Not Exempt.

Similarly, if there is other independent accommodation on the property it may not be exempt. See our article Capital Gains Tax and Studio Sale . The same principal applies to chambres d'hotes, about which you can read at Capital Gains Tax and Chambre d'Hote.

The law does not state how long you need to have occupied the property for it to be considered as your principal home.

As a rule of thumb, in order to escape the attention of the tax authorities, it is generally accepted that eight months is a minimum period to be accepted as your principal home. There are, however, concessions on this rule, e.g. death of a spouse, job relocation, force majeur.

The tax authority will likewise normally expect you to have made an income tax declaration at the address and that you are able to produce a taxe d’habitation (rates bill) in your name.

In order to qualify as your principal home the property must also have been occupied by you on an habitual basis up to the time of the sale.

However, this does not mean you actually need to be occupying it at the time of sale. You may well have relocated to another property while your previous home is for sale.

This concession may be available for up to a year, or possibly longer, but you will need proper reasons, which are probably best discussed with your local tax office.

The administrative doctrine states:

Dans un contexte économique normal, un délai d’une année constitue en principe le délai maximal. Cependant, l’appréciation du délai normal de vente est une question de fait qui s’apprécie au regard de l’ensemble des circonstances de l’opération, notamment des conditions locales du marché immobilier, du prix demandé, des caractéristiques particulières du bien cédé et des diligences effectuées par le contribuable pour la mise en vente de ce bien (annonces dans la presse, démarches auprès d’agences immobilières, etc.

In order to benefit from this rule you are not permitted to let out the property during the sale period, or to leave family members in occupation.

You can read more about this issue in our Newsletter article Capital Gains Tax and the Principal Residence.

If, coterminously with the sale of your principal residence, you sell separately building land forming part of it, with a view to the construction of a new dwelling, then this would be subject to capital gains tax.

If you live in two properties in the year then you will preferably need to have previously notified the tax office which of the two properties you consider your principal residence.

In practice, there are also concessions for former residents of France, which are considered below.

We considered the capital gains tax rules that apply on rental properties in our France Insider article at French Capital Gains Tax on Sale of Rental Property.

11.2.2. Duration of Ownership

If the property is a second home or a rental property you are liable to the tax, but you are granted an allowance based on the duration of your ownership of the property, as well as allowances for eligible costs, considered in later pages.

The table below shows the position for 2021/22.

There is also the potential supplementary rate referred to in the previous Section 1 for gains in excess of €50K.

i. Capital Gains Tax

As we stated in the previous page, the basic rate of capital gains tax is 19%.

Tapered relief against the tax is granted over 22 years of ownership, commencing from the 6th year of ownership, as follows:

• No allowance for the first 5 years of ownership.
• Between 6 and 21 years of ownership: 6% allowance per year.
• For the final 22nd year of ownership: 4% allowance.

This means that a property owned for 10 years would be granted a 30% discount on the tax, and one held for 15 years would be granted a 60% discount.

ii. Social Charges

There are two rates of social charges (Prélèvements Sociaux) that apply.

a. Non-EEA Residents

The standard rate of social charges is 17.2%, applied in addition to the main CGT tax itself.

In the same manner as capital gains tax, tapered relief is granted, but over a longer period of 30 years, commencing from the 6th year of ownership, as follows:

• No allowance for the first 5 years of ownership.
• Between 6 and 21 years of ownership: 1.65% per year.
• For the 22nd year of ownership: 1.60% in this single year.
• Between the 23rd year to 30th year of ownership: 9% per year.

The effect is that on a property owned for 10 year a 8.25% discount on the social charges is granted, and one held for 15 years would be granted a 16.5% discount.

b. EEA Residents

As a result of a change of law in 2019, social charges on those resident in France holding an S1 certificate of health exemption (or similar) were abolished, and replaced by a 'solidarity tax' (prélèvement de solidarité) at the rate of 7.5%. That gives a combined total rate before allowances of 26.5% of the two taxes.

This change also applies to non-residents living in the EEA who sell their French property, eg second home owners.

However, see our article Social Charges on EEA Non-Residents concerning notaires who are not correctly apply the new rule.

As far are UK nationals are concerned, those with an S1 certificate of health cover from the UK are entitled to the lower rate, as are non-residents living in the UK. See our article at Brexit and Social Charges.

Notaires seek official recent confirmation of your social security status, sometimes from both the UK and French authorities (une attestation d’affiliation à un régime de protection sociale étranger/un justificatif de non affiliation à la Sécurité sociale française) which is not always easy to provide. The law does not set out the requirements so notaires make up their own rules.

For non-residents you can use the following link to the HMRC - Apply for a certificate of continuing liability for National Insurance, although it is tricky to work through. You need Form CA8421.

Residents will also need to contact their local CPAM for a French certificate, although once again, it is often not easy, for it is not the job of the local health authority to determine whether you are eligible for a lower rate of tax. However, they should be able to confirm that your health cover is provided through an exportable benefit, the S1.

You should resist being obliged to supply letters from both your home country and French authorities, as one certificate/letter is all that should be required.

No tapering relief appears to be applied on the solidarity tax.

You can read about the change at Reform of Social Charges.

The following table shows the cumulative percentage discount for capital gains tax and social charges for each year of ownership.

There is sometimes confusion about whether the 7.5% solidarity tax is reduced for duration of ownership, but it operates in the same manner as the other social charges.

Table: Capital Gains Tax Allowances for Duration of Ownership

Complications on the application of this concession can arise where part of the property is inherited and then later sold.

Thus, a surviving spouse will be granted exoneration from capital gains tax if they later decide to sell if it is their principal home, or they have owned it for at least 22/30 years.

However, if her children also inherited part of the property on death of her spouse, they will not have owned it on the same basis, in which case they will be liable for capital gains tax, provided it is not also their main home. Their liability will arise on the difference between the declared value at the time of the death of the first spouse, and the actual later sale value.

Faced with a potentially large tax bill, not unnaturally, most inheritors do all they can to reduce the level of their inheritance tax liability.

So when it comes to getting a valuation of the real estate for inheritance tax purposes inheritors look around for a sympathetic notaire or estate agent to give them the lowest valuation.

The problem that this raises is that if the property is later sold, the valuation that will be used for the purposes of calculating liability to French capital gains tax will be that given on the inheritance tax declaration.

Although a reduction in capital gains tax is available based on duration of ownership, the clock is rewound on transfer of the property to the inheritors.

This can then mean that the inheritors later end up paying far more in capital gains tax than they would have paid in inheritance tax.

In a significant court case in Paris the inheritors later sold the property of their deceased father for three times the figure that had been assessed for inheritance tax purposes.

Faced then with a large capital gains tax bill they sought a retrospective alteration to the initial valuation, going even so far as to submit a revised inheritance declaration, enclosing a cheque for the new higher amount of inheritance taxes payable!

Now, although in principal it is possible to obtain a revision of the inheritance tax declaration (declaration rectificative) the French tax authority resists such applications where it is merely being done for the purposes of reducing the tax bill.

Numerous court decisions in the past have confirmed their right to do so, particularly where it arises subsequent to a sale.

In the case above this principle was again reaffirmed.

11.2.3. Former Residents of France

Since January 2019, former residents of France have been put in much the same position as residents, with the right to obtain exemption from capital gains tax on the sale of their former principal home.

Under the new rule, a non-resident who sells a property that was their main residence can obtain complete exemption from capital gains tax on the double condition:

• that this transfer be made no later than 31 December of the year following in which the seller moves their tax domicile outside France;

• and that the property has not been made available to third parties, free of charge or against payment, between the relocation and the sale.

The exemption applies irrespective of nationality or country of residence, provided the country has a tax agreement with France.

The regulation states that the date of the transfer of the tax domicile outside of France is assessed in accordance with the normal tests that are used to determine residency.

In terms of the vacancy test, there is also some leniency in the rule concerning occupation by a future owner and in the case of divorcing or separating couples.

If the seller is unable to meet the conditions of this exemption, a further exemption applies under previous rules that were in place.

Under these rules there is relief against capital gains tax on a property owned by a non-resident of France provided:

• You are an EEA national, although the administrative regulations suggest nationals from outside of the EEA would also be eligible, on a conditional basis;
• You can demonstrate that you have previously been fiscally resident in France for a continuous period of at least 2 tax years prior to the sale, eg tax returns;
• That the sale takes place within 5 years of your departure from France, or that:
• If the sale takes place later than 5 years from your departure from France, that the property had been available for your use since 1st January in the year preceding the sale. For example, if you sell your property in January 2024, the property must not have been let since January 2022.

By way of restricting the scope of this concession, the exemption from capital gains tax is to a maximum of €150,000 gain. The threshold applies to each owner of the property.

Accordingly, a non-resident couple who sold a former principal home in France would be entitled under this rule to a total exemption from CGT provided their capital gain did not exceed €300,000.

The maximum threshold is also net of allowances. That is to say it arises after deduction of allowances for duration of ownership and eligible costs.

The concession can only be used once, for one property.

This more limited exemption does not apply if you own the property through a property company, such as a Société Civile Immobilière (SCI). There must be direct ownership of the property.

We published a Newsletter article about capital gains and former residents, which you can find at French Capital Gains Tax and Former Residents.

11.2.4. Tenant First Sale of Property

Those who are tenants of their main home, but own a property located in France, are granted exemption from the capital gains tax on the sale of the property.

The rule does not apply to non-residents, and it is subject to other strict conditions, notably that:

• The sale cannot be earlier than 5 years after purchase of the property;
• The seller must not have been owner of their main home, either directly or indirectly, during the 4 years that preceded the sale;
• They must purchase their main home within 2 years of the sale;
• The sale proceeds must be used for the acquisition of their main home (that not used would be taxed);
• It can only be used once, so cannot apply to other properties.

You would need to discuss your circumstances in detail with your notaire/solicitor.

11.2.5. Low Value

No capital gains tax is payable if the sale price of the property is less than €15,000, whatever the gain on the sale price.

However, in these circumstances there is a liability to income tax on the proceeds, although the usual income tax allowances would apply.

Where the property is held in joint ownership then this threshold may be multiplied by the number of owners. So for two owners, the threshold is €30,000.

Where the sale of several parcels of land takes place to the same buyer, with the value of each parcel under €15,000, appreciation of the liability to CGT is considered globally, with the regulation stating:

'En cas de cession de plusieurs parcelles ou lots à un même acquéreur, il y a lieu d'apprécier le seuil d'imposition de 15 000 € en tenant compte du prix de cession global. Il est toutefois admis en cas de cession de parcelles, pour lesquelles des références cadastrales distinctes sont prévues et qui ne sont pas adjacentes, que le seuil d'imposition s'apprécie parcelle par parcelle. Ce seuil continue à s'apprécier globalement en cas de cession de parcelles d'un seul tenant.'

11.2.6. Elderly/Disabled Persons

Those resident and of retirement age, or registered disabled, are exempt from the tax, provided their annual income is below a certain threshold, and they were not liable for wealth tax (ISF) in the year preceding the sale.

The reference period for determining your income is two years prior to the sale.

Accordingly, for a property sold in 2022, it will be your income in 2020 that is used to determine your entitlement to this concession.

In 2022 the threshold figure is €11,120 per person, plus €2,969 for each half 'part' of other family members (spouse) living in the property. Thus, in the case of a couple the threshold figure would be €17,058.

An elderly person admitted to a retirement home or similar is also exempt from capital gains tax on the sale of their home for two years from being accepted into the home. The concession is also subject to taxable income not greater than €26,149, plus €6,109 for the first half part of the family and €4,810 for each additional half part. A couple would therefore be exempt with joint taxable income no greater than €37, 068. Neither can they have been liable for the wealth tax.

The seller must provide their notaire with all the necessary proof of entitlement to the exemption from capital gains tax (tax notice, certificate from the medical establishment, etc.). The deed of sale will then indicate the nature and basis of the exemption so that they can benefit from it.

These exemptions are available for all citizens from the EEA, as well as countries which have agreed a tax treaty with France.

Although if you meet these conditions you will be exempt from capital gains tax per se, you remain liable for the social charges.

11.2.7. Divorce/Separation in France

There is an exemption for those couples in the process of separation or divorce, one of whom may not be living in the family home (résidence principale) when it is sold.

Where, notably one of the parties remains in the property until it is sold, both benefit from exemption from capital gains tax.

This concession also operates in the case of those in a civil partnership, as well as those merely living together in 'free union', although in the latter case the couple would need to demonstrate more than they were simply co-habiting in the same property.

The exemption also applies in the case of a home under construction or renovation, where the couple were not living in it, but where they are able to provide satisfactory proof that it was being constructed or renovated for use as their principal home.

The position taken historically by the French tax authority has been that they will not allow an indefinite period for the property to be sold.

As a general rule, they have stated that one year from the official date of the divorce/separation is permitted.

This maximum period may be varied, depending on the circumstances of the case, as well as the local market situation.

In particular, where one of the parties has been ordered by the court to stay away from the former family home, then the courts have determined that both parties retain their right to exemption from capital gains tax, provided at least one of them remains in the property, even though the property was not sold for five years after the former spouse was ordered out of the property.

In recent years, the tax authority have been less rigid on the one year rule, and seem to be more willing to examine each case on its merits, if only because of the complications surrounding the divorce settlements and the delays that may be incurred in putting the property on the market, if at all.

If matters are more straightforward in the divorce settlement then in examining the period of grace they will allow, the tax authority will require evidence of marketing of the property, and that it is being offered at a reasonable price.

However, in certain circumstances, when there is a transfer of a property between a couple following a decision of the court it can bring about a liability for capital gains tax.

The legal position on this matter, as stated in a parliamentary response, is as follows:

L'attribution d'un bien propre de l'ex-époux débiteur en paiement d'une prestation compensatoire en capital a pour effet de transférer la propriété du bien à l'ex-époux attributaire et de libérer l'ex-époux débiteur de sa dette.

Lorsqu'elle est versée en exécution d'une décision de justice prononcée à compter du 1er janvier 2005, elle doit donc être regardée, conformément aux dispositions de la loi n° 2004-439 du 26 mai 2004 relative au droit de divorce et à l'article 281 du code civil, comme une cession à titre onéreux, laquelle constitue le fait générateur de la plus-value immobilière.

Il n'en résulte aucune différence de traitement de l'ex-époux débiteur au regard de l'imposition des plus-values selon qu'il cède un bien propre lui appartenant et verse le produit de cette cession à son ex-conjoint au titre de la prestation compensatoire ou qu'il abandonne un tel bien à celui-ci en paiement de cette même prestation.

Il s'ensuit que la plus-value immobilière réalisée lors de la cession ultérieure du bien reçu par l'attributaire est déterminée en retenant la valeur vénale du bien au jour de l'attribution.

Le point de départ à retenir pour le calcul de l'abattement pour durée de détention est la date de l'attribution de ce bien au cédant.

Accordingly, you need to take legal advice on your position to establish whether this might apply in your case.

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