A British national who lived between the UK and France each year has failed in a legal action to obtain capital gains tax exemption on the sale of their French home.

Although the sale of the principal residence in France is exempt from capital gains tax (plus value immobilière) holiday homes are liable to the tax.

Where a person lives between two homes, the tax is payable on the property where they spend most of their time, and where time is equally divided between two properties, it applies where the person obtains relief against the local rates, the taxe d’habitation, with the administrative doctrine stating:

'La résidence habituelle doit s’entendre du lieu où le contribuable réside habituellement pendant la majeure partie de l’année.

Il s’agit d’une question de fait qu’il appartient à l’administration d’apprécier sous le contrôle du juge de l’impôt. Dans le cas où le contribuable réside six mois de l’année dans un endroit et six mois dans un autre, la résidence principale est celle pour laquelle l’intéressé bénéficie des abattements en matière de taxe d’habitation.'

In a case recently heard in the French courts, a British national sought to obtain CGT exemption on an apartment they owned in Saint Tropez, Côte d'Azur on the basis that it was his principal residence.

When the sale took place, that exemption had been granted by the notaire, but, in a review of the case the tax authority took a contrary view.

After unsuccessfully challenging the assessment in the lower courts, the individual concerned appealed to the Supreme Court, the Cour de Cassation.

In court, although he claimed that the property had been his principal residence since January 2013, he was unable to produce a removal bill for the relocation.

An examination of electricity bills from the property also showed that consumption had been ‘erratic', and at a similar level to that incurred in 2011, prior to the property becoming his principal residence.

The other documents produced, such as a call for funds in respect of co-ownership charges, a health insurance statement, and certificates drawn up in the course of the legal proceedings, did not provide proof of habitual and effective residence in the apartment.

They judges also found that the address of the property in Saint Tropez had never been used in the income tax declarations made by the owner, who also owned other rental properties in France.

Indeed, the last address known to the authorities was in Bath, United Kingdom, where they had sent him his income tax notice and local rates bills for the property in Saint Tropez.

The rates bill expressly stated that the property was a résidence secondaire. The rates payable (taxe d'habitation) on a second home are higher than that payable on a principal residence.

The court also noted that he had given instructions to a local agent to sell the property in November 2012, two months before he had ostensibly moved into the property.

As a result, the decision of the tax authority to impose liability for CGT was confirmed.

Last year we reported on a similar case, at British Couple Judged to be France Resident, concerning liability for French income tax.