Tax on House Sale

[Polycarpe]

I've done a search on capital gains tax but couldn't find an answer to the following questions.

Do I have to pay capital gains in France on the sale of a house which has been my sole residence for a year (no property owned anywhere else).

If you have to have been resident for a minimum period before being exempt, how long is that?

If I do have to pay CGT, what's the % on a sole residence?

Any anwers to the above would much appreciated. Thanks

[Will]

It depends on where you are resident for income tax purposes.

In general, if you have been resident for long enough to submit a French tax return from the address being sold, you should not pay capital gains on sale of your principal residence in France. As you have been here for a year, you should have submitted a tax return recently.

Otherwise, you will need to convince the notaire and local tax office that you are French resident and it is your principal home. There seems to be a certain scope for discretion here.

There is no CGT on a sole residence as long as you meet the residency criteria above. Otherwise it is 16% for a private home owned by European residents, 33.3% for non-Europeans or other types of property. French residents have to pay an extra 11% in social charges.

[Quillan]

Everthing Will has said is correct. You should note that the law now refers to Tax residence simply because before you were sort of taken on trust and the system was abused by many (not just English I hasten to add). I did read all this in a LF magazine recently but I don't have time to go find it. I believe you need to have completed to tax returns to be classed as resident which then means you have been here a minimum of one year.

Before anyone says anything I am fully aware that this does not stop abuse of the system but just changes the way you can get round things and really opens another door as this one closes.

The use of the tax form and it being a method of stating residency is becoming more and more common (new wealth tax for example). There are pitfalls with this system but it does stop some of the current 'fiddles' till somebody finds another way round.

[Polycarpe]

Will and Quillan,

Thanks for the very useful replies - clear and comprehensive. 

Rob

[Ron Avery]

Quillan

I spotted your reference to being a  "tax resident" before but did not want to change the direction of the thread, but now its sort of closed off, what do you and others think the change means?  Let me give you two  examples, details slightly changed to protect the guilty) and perhaps we can see how the residency thing changes either situation. Both are couples from the UK, under retirement age and  both live in France under the definition of being tax resident.

 Couple A   Bought a house in France and moved here, applied for an E 106 and got a carte vitale, because "they were told they had to", but had not committed at the time to a full time move to France, still have a UK property and ae on Civil service type pensions taxed in the UK.  The  E 106 has expired.  They now live 100% in France but are now lying low until one gets a state old age pension and will get an E 121.  They got a letter from CPAM telling them they have no health cover now  but to date no letter from the Tax people demanding a reason why no tax declaration has been made. How would they be disadvantaged under this "change"?

 Couple B  One is in France on long term sick leave, sick pay taxed in the UK, the other one works from time to time for a UK company doing agency work on a self employed basis, employer deducts tax from pay. No E106, no carte vitale, both "exist" on a EHIC from a UK address and have filed no tax return here as they don't "really live here".  Can anybody tell me how the change Quillan outlined affects either example or makes the possibility of them being detected by the authorities any easier.

[Beryl]

We have a new house that we are selling but we have to pay tax on the difference between the construction cost and what we are selling it for because we have owned it for less that 5 years. If it is sold again within 5 years, the new owners will not have to pay tax.

This might not apply to you but mention it because it might be useful to someone.[:)]

 

[Quillan]

[quote user="Ron Avery"]

Quillan

I spotted your reference to being a  "tax resident" before but did not want to change the direction of the thread, but now its sort of closed off, what do you and others think the change means?  Let me give you two  examples, details slightly changed to protect the guilty) and perhaps we can see how the residency thing changes either situation. Both are couples from the UK, under retirement age and  both live in France under the definition of being tax resident.

 Couple A   Bought a house in France and moved here, applied for an E 106 and got a carte vitale, because "they were told they had to", but had not committed at the time to a full time move to France, still have a UK property and ae on Civil service type pensions taxed in the UK.  The  E 106 has expired.  They now live 100% in France but are now lying low until one gets a state old age pension and will get an E 121.  They got a letter from CPAM telling them they have no health cover now  but to date no letter from the Tax people demanding a reason why no tax declaration has been made. How would they be disadvantaged under this "change"?

 Couple B  One is in France on long term sick leave, sick pay taxed in the UK, the other one works from time to time for a UK company doing agency work on a self employed basis, employer deducts tax from pay. No E106, no carte vitale, both "exist" on a EHIC from a UK address and have filed no tax return here as they don't "really live here".  Can anybody tell me how the change Quillan outlined affects either example or makes the possibility of them being detected by the authorities any easier.

[/quote]

Firstly I am no expert and for clarification you should seek the advice of a professional.

In example A it is my understanding from what I have read that they are not classed as resident because the Tax man does not know they exist. Should they therefore want for example to sell their house they would have to pay CGT as it could not be their primary place of residence. Filling in a French tax return is the only way you can now be classed as resident. Their total situation is a bit dodgy to put it mildly and as one gets older the chance of one requiring medical care increases as does the cost. They could find themselves having to payout loads of money if one or both of them gets ill.

With example B I personally don’t have a clue but it’s obviously again a dodgy situation to be in. Being taxed in the UK with a Civil Service pension is no big problem. I actually know an ex tax inspector retired to Quillan who fills in a French tax form and does not get taxed on her service pension from the UK although it declared in France as well. She just hands in her P60 every year. I believe this to be the case with all ‘Civil Servants’ including the police and firemen.

Both these situations are really of the type that requires professional advice. Mine is only a personal opinion.

 

[Georgia]

Wonder if anyone can help me - we are considering selling our primary residence (and its attached 3 gites), having been here for 3 years.  There is a massive increase in value from when we brought it due to (a) all the work we have done (against which we know we could deduct the cost of the work undertaken by registered tradesmen); and (b) because we were very lucky to have bought it at a knock down price, so we are concerned about CGT.  As far as I understand it - e.g. Will's message in June to an similar enquiry  - we shouldn't have to pay CGT as it is our primary residence, but I see in Will's message a sentence saying "French residents have to pay an extra 11% in social charges" - would we have to pay this and is 11% of the gain or the sale price (in which case, I think we'll stay here!)?  Any guidance would be very much appreciated.

Georgia

[Will]

Georgia, your situation is complicated by the fact that being a house plus three gites your place is part home, part business, so although plus value will not be payable on the main house, it could well be on the gites. You would need to get professinal advice as to how the tax will be applied. The 11% social contribution, like the 16% tax itself, is levied on the gain, i.e. the difference betwen selling and buying prices less certain allowances, such as legal and agency fees.

[Gastines]

Another point I raised sometime ago may affect anyone with a registered business. We were told by our Notaire that as we were registered with the C.deC.[ obligatory in our case for our B&B ] that the portion of the property used for that business, is liable for a commercial tax of 26% on it's increase in value. He actually advised us to de-register and not trade for a year to avoid this. I have noted recently that a Hotel which has 12 letting rooms,all en-suite, which has always been busy in the season, is now up for sale as a residence suitable for B&B?with no mention of the fact it was an Hotel. It may appear that it depends who you deal with as to how they inforce the rules.

Regards.5 mins St.Malo.

[Gastines]

I was hoping a forum member would come back on the above point. Am I getting the correct information? Has anyone selling /sold a B&B or Gite, registered or otherwise, come up against this? Having been advised by the C.de C, and the H. de Impot that it was obligatory to register if you supplied ANY type of service, this obviously incurs extra payments,to the usual Organic/Urssaf/self-employed top up health cover/insurance. The above tax wasn't mentioned and it seems if you follow the rules you get hit by traffic in both directions!!! It would be interesting to hear other experiences of this, especially as there seems to be a tightening-up of  things in general on the B&B front.

Regards.5 mins St.Malo

[Georgia]

Thank you, Will,  for this, I will talk to an accountant before doing anything else as this looks as if it could potentially be a minefield.  Our only mitigating factor is that the majority of money we spent was actually on our house rather than the gites - but it might be a bit tricky convinced the authorities of this!  Georgia

[BJSLIV]

it might be a bit tricky convinced the authorities of this!

Wouldn't you want to show as much expenditure as possible on the Gites? That way you would reduce the gain, because thats where the tax liability will come from.