Changes are proposed to the exemption from capital gains tax granted to certain former residents of France.

Although only the main residence in France is exempt from capital gains tax, there is also a specific exemption to certain non-residents who were previously resident.

The rule is mainly to assist French nationals who move abroad, but because under European law there is a non-discrimination imperative, it applies equally to other European nationals.

This exemption is currently subject to three conditions:

• That you are national of the EEA;
  
• That you were previously tax resident in France for at least two years;
• That the property had been freely available for your use since 1st January in the year preceding the sale.

During the progress of passage of the recent Finance Bill 2014 through the French Parliament, the government accepted an amendment to these rules, which has the effect of both liberalising and restricting the exemption.

Vacancy Condition Relaxed

The main change to the existing rules concerns the clause requiring that the property was ‘freely available’ for your occupation.

This clause effectively means that if you let out the property it ceases to be at your disposal, so in order to be eligible the property would need to remain unoccupied.  Free use of the property to, say, members of your family or close friends would be permitted.

The current exemption also applies even though the property may not be furnished; it merely requires that it is ‘freely available’.

The problem with this rule, as was stated by the proponents of the change, is that it really only benefits the most well-heeled former residents, who could afford not to let out their property.

Those on more modest income are more frequently obliged to let out the property, meaning that they then lose entitlement to the exemption.

Accordingly, the new rule provides that the condition relating to the property being freely available will no longer be required, provided the sale transfer takes place within 5 years of your departure from France.

In addition, even this five year rule does not apply provided the seller has had the property at their disposal at least since 1st January in the year preceding the sale, thereby also retaining the principal of existing arrangements.

Maximum Gain Capped

However, by way of restricting the scope of this concession, the exemption from capital gains tax will be a maximum of €150,000.

This maximum threshold is net of allowances. That is to say it arises after deduction of allowances for duration of ownership, deductible costs and any other discounts, such as the current 25% discount that applies for sales that are concluded prior to 31st August 2014.

Operative Date

The new rule applies for all sales with effect from 1st January 2014, subject to final parliamentary approval, which seems highly likely as it has the support of the government.