Capital Gains Tax

[Mozman]

We have second house in France which we want to sell and to then buy another house in France. If we move to the house, rent out the house in England and register for tax in France would this be enough for the house to be the principal residence. I understand that there is not time limit for residence rules when applying CGT? Some people have said I would need two tax returns, other say you need two years. Surley if I am paying income tax in France and it is the only house i can live in, then it must be the principle residence. I do not see how the French could collect income tax and CGT at the same time!!!!!!

Any thoughts are mosrt welcome.

[parsnips]

[quote user="Mozman"]We have second house in France which we want to sell and to then buy another house in France. If we move to the house, rent out the house in England and register for tax in France would this be enough for the house to be the principal residence. I understand that there is not time limit for residence rules when applying CGT? Some people have said I would need two tax returns, other say you need two years. Surley if I am paying income tax in France and it is the only house i can live in, then it must be the principle residence. I do not see how the French could collect income tax and CGT at the same time!!!!!!

Any thoughts are mosrt welcome.[/quote]

Hi,

     In principle one days residence in a house qualifies it as the principle residence.  In your case , you "register" for french income tax by making a declaration.  This you do in the spring of the year following your becoming physically resident . You also have to register your leaving with the UK tax people (forms P85 and "France Individual").   All this takes some time.

     It's the notaire who decides in the first instance, if it is your principal residence , so why not speak to a notaire before commiting yourself?

    

[Pommier]

I'd presume that you'd need to be legally resident ie have health insurance, reregister cars etc as well as completing a tax return.

[woolybanana]

Actually, I wouldn't trust the notaire on this issue, but would try and get a declaration from the tax office that the house is your main residence and that you registered for tax before you put it on the market and that you lived there for a period. Then the notaire would have to follow rather than making a judgement.

[Chiefluvvie]

Hi - just read the OP and don't quite get it .... you clearly state 'we have a SECOND house in France'. So, are you simply trying to avoid paying CGT with a 'quick fix'? (there isn't one by the way!). Have you actually made a profit on which French CGT would be due as a non-resident EU citizen?

Obviously, if you sell your French property whilst still a UK resident, you'll be liable for both French AND UK CGT - if you're a higher rate tax payer. On top of that you may need to appoint (and pay!) a French based fiscal representative - depends on the sale value.

If you rent out your house in England, you may, as a French resident, become liable for French income tax and social charges on the income - would this be less than your CGT bill?

And finally - no law against paying income tax AND CGT at the same time! If you make a capital gain on a non-principal residence then you're liable for CGT - regardless of any income tax you pay anywhere. There is no correlation between liability to CGT and Income Tax over and above your nominal rates of income tax in either country.

Chiefluvvie

[Judith]

[quote user="Chiefluvvie"]Hi - just read the OP and don't quite get it .... you clearly state 'we have a SECOND house in France'. So, are you simply trying to avoid paying CGT with a 'quick fix'? (there isn't one by the way!). Have you actually made a profit on which French CGT would be due as a non-resident EU citizen?

Obviously, if you sell your French property whilst still a UK resident, you'll be liable for both French AND UK CGT - if you're a higher rate tax payer. On top of that you may need to appoint (and pay!) a French based fiscal representative - depends on the sale value.

If you rent out your house in England, you may, as a French resident, become liable for French income tax and social charges on the income - would this be less than your CGT bill?

And finally - no law against paying income tax AND CGT at the same time! If you make a capital gain on a non-principal residence then you're liable for CGT - regardless of any income tax you pay anywhere. There is no correlation between liability to CGT and Income Tax over and above your nominal rates of income tax in either country.

Chiefluvvie[/quote]

I think the OP is thinking of moving to the (currently) second home he has in France and renting out his (currently) main residence in England, this switching his main residency.

[Chiefluvvie]

Oh right...I got that one wrong then !

Chiefluvvie

[Mozman]

The point is that we want to live permanently in a new home in France. However, if we sell our house in Normandy whilst our permanent home is in the UK we would be penalised with CGT that would be well above the expectation when we purchased. Therefore it seems that by designating the house in Normandy as the primary home we will not be required to pay CGT to France or the UK authorities.

In the UK many MP's bought second homes in London with expenses, then switched permanent residence and sold to avoid CGT. They did this purely to make money, and not because of a loyalty to a particular home. I bet French politicians do the same!!!!!!

We can keep our house in the UK and only have to pay CGT on the UK property if we sell after 3 years. Also any rent on a property in the UK is only subject to UK tax. The profit would not be great anyway and any potential tax liability in France would be very low.

The point I made about it not being logical to pay CGT and income tax is logical. If the French taxman is charging income tax and cotisations he is accepting that I am resident, therefore it should not be logical for the French taxman to try and charge CGT. He can not have his cake and eat it!!!!!

We always intended to live in France and would prefer to relocate in the future home that we would like to buy. However the penalty for doing this is going to become unreasonable, hence why we are now considering establishing permanent residence prior to a sale. Governments do not bat an eyelid at arbitrarily changing tax rules, it is upto individuals to explore practical and legal means to avoid payment. Lets face it, much of the tax raised is being used to pay government debt and to bail out the Greeks!!!!! Not social improvement.

[Mozman]

Thanks, I would agree that it would be unwise to trust a Notaire to direct me and thus not pay CGT. It is my view that Notaires will not provide advice to assist with avoiding CGT, they are principaly employed to collect tax and they will not leave themselves open to scrutiny from the taxman. I would agree that if the taxman accepts that I am a permanent resident before any sale the Notaire really has to follow suit.

I think that thius has to be the logical route to follow.

[Chiefluvvie]

Interesting reading Mozman (!) - although the Greek problem has also been compounded by a high level of tax avoidance!

Are you sure you are ready for France?

Chiefluvvie

[woolybanana]

He seems perfectly ready.

[Mozman]

I am perfectly ready for France.

The main problem with the Greek issue was allowing a country to enter the Eurozone without proper fiscal disciplines in place. Then, primarily French and German banks chose to lend huge amounts to fund the purchase of their goods. The Greeks took loans they could not afford, which is largely the rsponsibility of the banks that lend. In the case of government that came down to the ECB and other institutions.

The desire for a Federal Europe seems to have overiden economic sense. The Greeks had a history of defaulting debts. They defaulted 4 times in the 19th Century alone. Why did Europe lend to them and let them in? These terrrible decisons are now having to be paid for by French and English taxpayers amoungst others.

These issues have the same implications in England as well as France. Many in the UK are very angry.

I think it is very simplistic to say that tax avoidance is componding the problem. The Greeks are the same now as before any loans were made. Unlike the Greeks I am not seeking to avoid tax illegally, I am merely exploring the legal means to avoid it being charged - A subtle difference!!!!

[suein56]

[quote user="Mozman"]I am perfectly ready for France. [/quote]

I agree.

How about this as an example of French calculation:

Whilst house hunting OH and I went to look round a very nice house for sale. The owners were a newly retired couple; they had had a flat in Paris which they had sold after having a house built in our area. They moved into said house, after having had the walls painted, the kitchen fitted, the cellier fitted out as a downstairs shower room and their mail redirected. Then they immediately put it up for sale as they were having their (proper) retirement home built in the Pyrenees. They gave themselves 8 months to sell the house and move out to their Pyrenean home.

Cost of house in 56: land - small plot = approx €80K, house - no garage = €82K, addons - kit/shower etc = €13K. Cost approx €175K; sale price, net vendeur as they sold it themselves = €300K.

Plus, of course, they had a lovely 4 bedroomed home to live in whilst their bigger, posher home was being built.

A nice little tax-free earner in less than a year. Well thought out.

Sue

[Chiefluvvie]

 

So suein56 - what's wrong with that? People been doing that in the UK and Europe for ever....

Sell your property, buy a cheap one and do it up, sell it at a profit (good one!) to help fund the house you're having built - no CGT implications!

On the other hand, if you sell a property that isn't your principal residence - you're liable for CGT just about everywhere. Unless of course you can wriggle out of it becasue you think it doesn't 'apply' to you....

Chiefluvvie

(Oh and Mozman - thanks for the Greek history lesson....)