Taxed Profits on Property Sale

[ClaraQ]

Hello

I know there is tax to pay on the profit you make on your maison secondaire if you sell it within 21 years, and that this tax is on a sliding scale depending on how long you have owned the property.  What I don't know is by how much this tax is reduced year by year of ownership.  For example, how much less tax is due for a property that is owned for 5 years as compared to one that is only owned for 4 years.

Does anyone out there know?

Thanks

Clara

[Will]

The current capital gains tax position in France is, putting it into very simple terms, that you have to have owned the house for five years before you get any time-related reduction in capital gains tax (plus value). After that the liability reduces by 10% of the profit each year - so after 15 years of ownership you would not pay tax. Before 2004 it was indeed 22 years of ownership.

It's not quite that simple of course, but that will give you a pretty reasonable idea.

[ClaraQ]

Thanks Will,

Can you tell me what the percentage of tax payable is if selling within the first 5 years of ownership?

Clara

[Val_2]

Didn't it used to be 33.3% on profit withinthe first few years of ownership. Get your notaire to clarify the position as putting off a sale by a short while may reduce it further for you. My friend had her flat for sale 14 years and 360 days before the new period came inthe other year, so the notaire told her to wait until the 15th year had passed for the paperwork to go through and she had her tax reduced.

[Will]

If you sell within the first five years you will be liable for the full amount of tax. What percentage of the profit this is varies, so do as Val suggests and check with a notaire, or you can use an on-line calculator (naturally enough all are in French) such as http://www.anil.org/guide/calculs/plusvalue/pluvalue.htm.

The rate for non-EU citizens is 33%, for EU citizens (which I don't think includes the recently joined countries) it is 16%, while if you are resident in France you pay an extra social tax, equating to about 26%.

[BJSLIV]

Don't forget that though you can reduce your gain by the cost of any work carried out by French artisans, find those invoices quickly!, you no longer get any credit for work you have done yourself, or using non-French registered traders.

[Baz]

One further point that may be forgotten, if you are resident in the UK and a tax payer there, you would also be liable for UK CGT. Although there is a double taxation agreement between France and the UK any additional UK excess liability will also be payable to the Inland revenue. It is not an easy calculation and a lot is dependant on the amount of the profit element. For further details the Inland Revenue are very helpful or discuss with an accountant, hopefully the amount of your French liability may well negate most if not all of the UK tax.

Baz

[BJSLIV]

As far as CGT in the UK is concerned it can get quite painful for a 40% taxpayer, once the initial £8000 allowance is used up. Fingers crossed that the property is in joint names. At least then  you would get two lots of allowances.

[ClaraQ]

What if we sell the holiday property and pay the 16% CGT in France and then use the money left over to buy another French property?  Surely, the UK tax office wont get involved?

Clara

[BJSLIV]

What if we sell the holiday property and pay the 16% CGT in France and then use the money left over to buy another French property?

It would still represent a gain which should be reported on your UK tax return, and which  could be notified by the French authorities to their counterparts in the UK.

We never reported our purchase in France to the Inland Revenue, but we received a detailed questionnaire asking for details of any rental income received.

[Baz]

Clara, you have not said if you are UK resident and Tax payer. But assuming you are and there is profit in the sale of your Maison Secondaire you have made a Capital Gain and you are potentially liable for CGT in France and the UK. The fact you purchase another property has nothing to do with the Tax implications. I might add that it is entirely your responsibility to declare your French Property gain on your UK Tax return and I would certainly not advice against doing this.

To be fair if you have made a gain then you are going to be taxed, but remember you will still have made a smaller gain after paying the tax and that cannot be bad. Depending on your UK tax rate, CGT annual allowance and the amount paid to the French Taxman you may well find the amount due to the Inland Revenue not to be too penal.

I sold my Maison Secondaire after 14.5 years and because of the new French CGT rules 2004, I paid virtually nothing in France and had no liability in the UK.

 

Baz

PS, BJSLIV our responses must have been posted at the same time

[ClaraQ]

Yes, we are UK residents and tax payers at present, but are hoping to move permanently to France in the next year or so. Would it, therefore, be better to delay the sale of the house until we move and then we would only be liable for the 16% French tax?

By the way, thanks for all the replies. It's really helpful.

Clara

[BJSLIV]

Yes once your French house became your main residence it would escape the tax on gains.

Prior to last year if you moved into a house that you already owned you had to wait 5 years for it to qualify as residence principale. I'm not quite sure how or if you can  prove that it's a residence principale in the period until you  complete a tax return, ie the year after you actually move in.....

[Owens88]

What if we sell the holiday property and pay the 16% CGT in France and then use the money left over to buy another French property?

Are you asking is there roll-over relief for re-investing within 'the business'?

I don't know the answer but would love to hear an authoritative one.

John

[phylisbide]

What happens if we buy our friends' half of the house? The arrangement at present is a maison secondaire, 50:50 split. Will they pay CG tax on the total gain or their half of the gain? Presumably all of the other issues (GB tax returns, etc) apply for them too.

[Teamedup]

I'm not sure if it works like that. You may be selling it and then you rebuying therefore the cgt may be on the whole thing. Sorry I don't know, I just know that my neighbours wanted to put the house in his name when they split up and they couldn't just do that. So the house was sold by them and bought by him, with all the notaires fees that incurs.

[graham34]

What happens if we buy our friends' half of the house? The arrangement at present is a maison secondaire, 50:50 split.

In this situation the house has to be considered as two assets. You purchased 50% of a house for x amount in year y and another 50% for another amount in a later year. This would alomost certainly be the case in the UK but I wouldn't assume that France is the same.

Just to be clear, there is a tapered tax relief system on capital gains in the UK that favours keeping an asset for longer, but it's not quite as generous as the French system. After 2 years the chargable gain reduces by 5% per year. After 10 years the maximum of 60% is reached.

Graham