A French court has narrowed the scope of the capital gains tax exemption on the main home.

The property was a chateau with outbuildings in a park of 93 hectares, most of which was woodland.

The deed specified that the sale price was €1,472,600 for the land and buildings and €97,400 for fixtures and fittings, but no spilt was made  between the value of the land and the chateau.

As the property was considered to be their principal residence, neither the notaire nor the couple made a capital gains tax declaration.

The law states that the principal residence includes all ‘immediate and necessary dependencies' (dépendance immédiate et nécessaire).

In a review of the sale, the tax authority considered that the exemption provided for in the event of a sale of the principal residence could not apply to the entire sale price.

They therefore served notice on the couple to make a formal declaration of capital gains.

As the couple failed to do so, based on their own assessment of the value of the land, the administration imposed tax and social security contributions plus penalties on the capital gain associated with the land, after allowing 11 hectares as exempt under principal residence provisions.

The couple contested the imposition in the local tribunal, but in a judgement in March 2019 the court rejected their claim.

The court considered that the 93-hectare park did not constitute an ‘immediate and necessary dependence’ as defined by tax law.

Consequently, the park must be evaluated and subject to capital gains tax.

In an appeal heard in the Cour de Cassation, the couple claimed that the valuation of the land carried out by the tax authority was erroneous, but the judges confirmed the judgement of the lower court on the status of the land as well as well as the calculation of capital gains tax.