The main home in France may well be exempt from capital gains tax, but at what point is this exemption lost if the owner moves out?

We have previously considered on these pages the circumstances of former residents of France who are able to obtain an exemption to capital gains tax on the sale of their French property.

This rule applies only to those who were previously resident in France for at least two years. It is also subject to other limitations and conditions.

However, there are also other circumstances when selling the main home after you have vacated it continues to grant full exemption from capital gains tax, without such limitations.

This arises where you may have relocated to another property within or outside of France, while your previous home is on the market for sale.

What the law says is that you do not need to be occupying your property for it to lose the status of your principal residence, provided the sale takes place within a 'normal period'.

The law on this issue dates from an 2004 administrative doctrine, which states that the exemption from capital gains tax can still be maintained for up to one year after the owner vacates the property, provided in the meantime they have taken appropriate steps to dispose of it.

The question that frequently arises in jurisprudence is just what is a 'normal period', for the term is not defined in statute? The law merely states that exemption is granted where the property 'constituent la résidence principale du cédant au jour de la cession'.

In a recent case that came before the Conseil d'Etat, the highest administrative court in France, the judges decided that a period of 22 months could be considered to be 'normal' and that on this basis an exemption from liability to capital gains tax could be granted.

This decision overturned an earlier judgement of the Cour Administrative d'Appel sitting in Nantes.

This legal intervention followed an examination of the case by the local tax office, after the notaire had processed the sale on the basis of the property still remaining the principal residence of the seller, thereby granting exemption from capital gains tax. The tax officials decided that capital gains tax should be paid, a decision challenged in the courts by the sellers.

In making their judgement the court thought it appropriate in determining the period that might be considered 'normal' to give consideration to a range of factors - the reason why the property was unoccupied, the characteristics of the property, the local market, the price sought, and the wider economic context. Most importantly, the court would also wish to be satisfied that the sellers had acted in a diligent manner.

The Conseil d'Etat stated:

"Considérant que, pour l'application de ces dispositions, un immeuble ne perd pas sa qualité de résidence principale du cédant au jour de la cession du seul fait que celui-ci a libéré les lieux avant ce jour, à condition que le délai pendant lequel l'immeuble est demeuré inoccupé puisse être regardé comme normal ; qu'il en va ainsi lorsque le cédant a accompli les diligences nécessaires, compte tenu des motifs de la cession, des caractéristiques de l'immeuble et du contexte économique et réglementaire local, pour mener à bien cette vente dans les meilleurs délais à compter de la date prévisible du transfert de sa résidence habituelle dans un autre lieu".

As a broad rule of thumb, the local tax authorities normally grant a period of a year for the property to be sold, without any questions being asked. In the past the government have previously relaxed this provision to two years, but this was due to a difficult economic climate in 2009/10.

In response to a parliamentary question in 2010, the French Government left open the possibility that in some cases the period could be greater than one year.

In particular, they stated that, whilst in 'normal' circumstances one year should be sufficient, no general rule should apply, as local conditions would be taken into account in the assessment of individual cases, stating thus:

On this basis, there still remains no fixed period to define when such an exemption might apply, as it would depend on the circumstances of each case.

Home Outside of France

Strictly speaking, this period grace applies whether or not the main home is located in France or elsewhere in the EEA.

So if you relocate to France before you sell-up, for those who wish to declare a capital gain, it should be possible to obtain exemption from French capital gains tax on the sale of the former home, provided the sale takes place within a 'normal' period of relocation to France.

For UK former residents it would also currently be exempt from UK capital gains tax.

In this connection, it should be remembered that if you are resident in France, under the terms of the UK-France tax treaty the sale of a home in the UK is liable to French capital gains tax, albeit the same allowances and exemptions apply as they would were the property to be located in France.

The same general rule applies to other countries of Europe, although there may be some variation depending on the terms of individual tax treaties.

However, Duncan Campbell of French tax advisors Kentingtons states that the French tax authorities have been unwilling to confirm that the one year period of grace applies for properties outside of France. "We have yet to come across anyone who has been taxed under this rule, but the regulations governing this matter simply assume that the property is located in France. So whether the UK main residence is treated in the same manner remains a grey area. The only way of ensuring it will not be liable to tax is to sell before you relocate."