What French capital gains tax do you pay if you decide to sell a second home in France?

We regularly receive e mails from readers about capital gains tax in France, so we thought it might be useful if we took you through an example of how it works.

Case History

Let us take the case of a couple who bought a second home in 2000 for €180,000, on which there was also €12,600 acquisition costs.

During the time they owned the property, the couple spent €2000 on materials on installing, by themselves, a new bathroom. A builder also added small conservatory for €12,000. Both prices included VAT.

The couple sold the property in 2007 for €260,000, having owned it for 6.5 years.

They paid their estate agent €15,600 commission, as well as incurring €1200 on statutory surveys.

As the property is not their main home, and as they have not owned it for at least 15 years, they are liable for capital gains tax. The tax is calculated on the difference between the purchase and selling price, less certain deductions.

Reliefs and Allowances

The couple are able to deduct their survey costs of €1200, as well as the estate agents commission of €15,600.

The original purchase price of the property is increased by the notairial acquisition costs of €12,600. Alternatively, the couple would be otherwise entitled to make a standard deduction of 7.5%, if that was more favourable. In this case it would be €13,500, so it would pay them to go for this option.

As they carried out the works to bathroom themselves, the costs of these improvements cannot be included.

However, it would be possible to offset the costs of the conservatory against the selling price, although, as they have owned the property for at least five years, they would otherwise be entitled to take a standard 15% building works allowance against the original purchase price. As this would net them €27,000 it would be better to opt for this allowance, rather than the actual costs of the conservatory.

Had they otherwise let the property out, and claimed the improvement works against liability to income tax on the rental income, they would not be able to benefit from this deduction. Nevertheless, this is not always a relationship that either the notaire or tax office picks up.

Calculation

We first need to take the sale price, less surveys and estate agent commission:

• €260,000 - €1200 - €15,600 = €243,200

We should then calculate the purchase price, increased by acquisition costs and building works:

• €180,000 + €13,500 + €27,000 = €220,500

So the capital gain is:

• €243,200 - €220,500 = €22,700

On this amount the notaire can apply a 10% tax allowance for each full year owned for at least six years.

Accordingly, they are entitled to an allowance of 10%:

• €22 700 – (€22 700 x 10%) = €20,430

There is then a general allowance of €1000 for each of them:

• €20,430 - €2000 = €18,430

The rate of capital gain is 16%, giving tax of:

• €18,430 x 16% = €2,949

Had the couple been resident in France, and the property had been their main home, then no capital gains would have been payable.

Needless to say, if you are not resident in France, you may also be liable for capital gains tax in your country of residence, although this would depend on the terms of any tax treaty with France.

You can read more in our guide to French Capital Gains Tax.