Can you offset tradesmen's bills against the CGT on a house sale?

[nectarine]

We're selling our cottage which we've owned for 11 years as a 'maison secondaire'.  During that time we've had a considerable amount of work done on it, re-plumbing, electricity, etc., which have been done by tradesmen and we've kept their bills.  The total of this work is about the same as the original price we paid.  There's about the same amount again as 'profit' or increase in value. 

So the total price is house 1/3, improvements 1/3 and 'profit' 1/3 - just to keep things simple.

Firstly, is Capital Gains Tax payable as we have owned for 11 years?  I know that it tapers off but is the cut-off point 10 or 15 years?

Can the tradesmen's bills be offset against the increase in value - will the 1/3 that we spent on improvements be taken into account?  A French neighbour who is accompanying us to the notaire (to aid translation) is insistent that they are ignored but I'm fairly certain that I read somewhere (!) that they could be used to offset the tax?

I hope I've made this question clear since I've been reading up about this and getting conflicting advice.  So can we present the tradesmen's bills and reduce the 'profit' and, on the remaining 1/3 of 'profit' will there be any CGT payable and, if so, roughly how much or hat percentage.

Many thanks in advance for your advice !

[Ron Avery]

This thread might help

http://www.completefrance.com/cs/forums/928914/ShowPost.aspx

The cut off is now 15 years, it scales down through the years.  This changed when the rules changed and from then you can only use bills with TVA paid from registered artisans to offset against CGT, the days of producing wads and wads of M Bricolage receipts are long gone.

[Will]

After 5 years of ownership tax liability reduces by 10% each year. So for 11 years ownership you will get 6 years of reduction, i.e. 60% off. Not all work can be offset, and any invoices only count if they are from registered tradesmen, and are fully itemised, including your name and the address of the house where the work was done. As an alternative, after five years of ownership you can claim a standard percentage to cover repairs etc and this might work out better for you. The notaire handling the sale should be able to advise. Assuming you are a European resident, the rate of tax is 16%. So for 10,000€ gain you would pay 1600€, which reduces by 60% to 640€ even before you worry about the bills. Not a lot.

[nectarine]

Will and Ron, many thanks for your excellent and informative answers.  Exactly what I wanted to know and put in plain English ... I could actually work out, through your calculations, what our liability is!!  You're both stars!!

My next question is that we are leaving an Aga/Rayburn in the house together with a woodburner and a fitted kitchen, all paid for by us.  Now I plan to allocate some of the sale price as being for the sale of those items to our buyer ... so the price of the house is a bit lower than the actual sale price of the entire house + fittings.  I know this can be done since the house that we're buying further south has, in the compromis de vente, about 5% being specified for equivalent bits and pieces which reduces the seller's tax bill and the notaire fees by a little.

If I produce the receipts for the Aga, woodburner and kitchen, as proof that they exist, then presumably the notaire might want to 'write down' some of the value.  However, the Aga - I think - maintains its value. 

Naturally, if we can claim a bit of the house sale price as being for these fittings then this may reduce our capital gains tax bill a little more.

Can you advise me if this can be done and, if so, how?  I'm very grateful for your advice and thanks again for your prompt replies.

[Will]

Yes, you can take items like fitted kitchens, including appliances, 'outside' the main house sale. The biggest advantage is that this reduces the tax bill (stamp duty equivalent) for the buyer. You will have to agree with the notaire exactly what can be excluded in this way, and what value you can put on them. If you have the original receipts, that should help. These items, and the total selling price, will still be listed on the Acte de Vente so you and the buyer (but not the French treasury) can get the best of both worlds.

[Baz]

I sold my house furnished and certainly was allowed to offset the cost of the fittings against the profit. However, the Notaire will advise you on the amounts that can be claimed that will satisfy the French Authorities for the purpose of Capital Gains liability.

Baz

[nectarine]

I have made a list of the fixtures and still have the original receipts.  Ha ha ha to my husband who says that I hoard things like a demented squirrel .... I knew that there was a reason to hold on to them!

Anyway, many thanks to all who replied and I'll let you know how I get on as this may help other people who are/will be working through the same problems.

 

Cheers, all!

[gloucesteroldspot]

Don't forget that if your selling price (ie what you will actually receive after fees etc) is 150,000 euros or more you will be required to appoint an insurance company who will calculate the plus-value liability and insure you against any further capital gains liability that might conceivebaly arise from the sale. This has two major downsides...they will be extremely tough in what they allow to be offset against any gain, and they will also charge you 1 percent of the sale price (plus VAT) for the privilege.  You will need to argue very strongly if certain things are classified as repair, renewal or maintenence (and therefore not allowable) rather than improvement, but ultimately you have no redress or appeal against their decisions.

There aren't really any benefits for you, as the chance of any further liability arising is extremely remote.  Rumours abound that this recent change has led to a resurgence of the old but highly illegal practice of declaring a lower price and slipping wads of notes under the table when the notaire turns his back! If this is true it could certainly have something to do with the recent property value falls we've been seeing throughout France.

[nectarine]

Thank you all for your excellent advice.  gosh this forum is wonderful.

I saw the notaire and took all the receipts which he wanted classified by 'project' rather than date.  So I had to re-group them and summarise them as 'installation of bathroom', 'installation of central heating' etc., rather than just a chronological grouping.

He then went through them and accepted some, but not others.  One that he rejected was for the complete replacement of the electrical wiring with additional plugs and lights to each room - previously we had some dodgy look wires poking out of a wall with an ancient switch and one very black lightbulb on a piece of frayed wiring!  Anyway, he said that since electricity had already been installed to the property then the work we'd had done was technically a 'replacement' and wouldn't let it through.  But he did allow us all the bills for the bathroom since we'd only had a WC on the ground floor which ran to a crack in the ground, so all the bills for connecting to mains drainage and moving the WC into a proper bathroom with all the shower, basin, bathroom, etc., could be allowed, plus putting windows into that room.

What really threw him, however, was how I'd put the figures.  Of course I'd written all the numbers in the English manner - a comma after the thousands, and the separation of euros and centimes by a full stop.  He kept raising his eyebrows and saying it didn't add up which worried me since I'd spent the previous evening checking and re-checking everything with a calculator.

Eventually I saw his point - the French separate their thousands by a full stop, and separate their euros and centimes with a comma!  After I amended everything then suddenly comprehension dawned and he gave a big smile.

Our house sale price is below 150,000 euros so the insurance issue won't come into play, but as we have owned our house for 11 years then we receive a 60% reduction in the capital gains tax payable.  Of course I want to reduce what we have to pay by as much as possible so every bill has been put in front of the notaire!

Well I'm still working on this, but will report as things happen.  Meantime, sincere thanks to everyone who gives useful advice on this forum.  I feel like you've held my hand a lot throughout all this and I have a network of intelligent minds and useful experience to turn to.  Keep it up!

[gloucesteroldspot]

The interpretation of what is an allowable expense for plus-value purposes does seem to be very variable. I was allowed to offset the full cost of new electical wiring by by one of these government appointed insurance companies (did anybody say jobs for the boys? Surely not!) so your notaire is being over-cautious I think- perhaps he could be persuaded to seek advice?  I would have expected the insurance companies to be tougher than the notaires on this, as they are taking on the liability, but many notaires appear to be a bit intimidated by the new regulations so may just be covering their backs.

On the other hand I wasn't allowed the installation of kitchen units (although there were none before) so the whole thing appears to be a total mess. I guess it's not particularly in the government's interest to sort it out though so I expect everybody will just have to muddle through.

One small additional word of warning however. When I sold I had to produce not only copies of paid invoices but also proof that some of the traders has actually received the funds - ie copies of their bank accounts! I've not come across anyone else who has had to do this, but it's not easy, especially if you are going back a few years.  Strangely this was thought to be necessary only for the English companies, all of whom were fully registered in France.

[nectarine]

hmmm, I see your point.  But we used French tradesmen and so the accepted bills went in without a murmur!  However, re. the electricity replacement, I may try this one again.  I can see his point that it is a replacement electrical installation but I think that installing electric lighting in each room would be considered a necessity, plus putting a plug in each room, so I may try sweet-talking him around to this one, especially as it was one of the bigger expenses!

Thanks for all your advice.

[gloucesteroldspot]

You might also argue that the electricity work was necessary to bring it up proper legal standards ...in this sense it could be considered a 'new' installation, as the old wiring was not fit for purpose. After all if you had a roof full of holes and needed to replace it this would be a 'new' roof wouldn't it?

[johndalton36]

There are a couple of points I would like to make here.

First of all under EU legislation it is not possible for only bills from French artisans to be included in the renovation costs to offset against CGT. For those who have had English, Dutch, Belgian, German or Italian bonafide firms in to do the work there is no legal reason why their invoices can not be included provided they follow the prescribed format (IE state your full name and the address of the property on which the work was conducted, Vat number etc).

Secondly for those of you who are considering a major renovation project, and want to carry out some or all of the work yourselves, you would be better off buying a French company for the purpose, registering it for TVA so you can reclaim VAT for the bills along the way @ 19.6%, and paying VAT on invoices your company raises to yourselves as house owner at 8% where applicable. You will also get full trade discounts at the builders merchants.

For substantial projects the benefits will far outway the nominal accountancy costs, and when it comes to CGT you will surely have enough bills (rather than Mr Bricolage receipts) to have significantly reduced your gain.

[BJSLIV]

Secondly for those of you who are considering a major renovation project, and want to carry out some or all of the work yourselves, you would be better off buying a French company for the purpose, registering it for TVA so you can reclaim VAT for the bills along the way @ 19.6%, and paying VAT on invoices your company raises to yourselves as house owner at 8% where applicable. You will also get full trade discounts at the builders merchants.

Even after........

Registering with the Chambre de Metiers.

Giving evidence of one's qualifications to do the range of work proposed.

Attending the necessary courses.

Paying all the associated registration fees  and insurances.

Paying accountants fees.

????????

Also

If the work qualifies for lower rate VAT (5.5%)  then much of it will not qualify to be offset against VAT as it will be deemed to maintenance/replacement.

As far as Foreign bills are concerned they will be accepted as long as the supplier has jumped through the necessary hoops to register with the French bureaucracy, thereby qualifying as a French registered trader........

 

 

[Nick Trollope]

[quote user="johndalton36"]

There are a couple of points I would like to make here.

First of all under EU legislation it is not possible for only bills from French artisans to be included in the renovation costs to offset against CGT. For those who have had English, Dutch, Belgian, German or Italian bonafide firms in to do the work there is no legal reason why their invoices can not be included provided they follow the prescribed format (IE state your full name and the address of the property on which the work was conducted, Vat number etc).

Secondly for those of you who are considering a major renovation project, and want to carry out some or all of the work yourselves, you would be better off buying a French company for the purpose, registering it for TVA so you can reclaim VAT for the bills along the way @ 19.6%, and paying VAT on invoices your company raises to yourselves as house owner at 8% where applicable. You will also get full trade discounts at the builders merchants.

For substantial projects the benefits will far outway the nominal accountancy costs, and when it comes to CGT you will surely have enough bills (rather than Mr Bricolage receipts) to have significantly reduced your gain.

[/quote]

Nope.

This has nothing to do with EU legislation. CGT rules are national. France says that only French-registered Artisans invoices are acceptable. It matters no a jot where the come from, inside or outside the EU.

Furthermore, a company (or individual) cannot pay itself (to work on its own property), nor can it reclaim the TVA (for work on its own property). UNLESS it/they are registered as a Marchand de Biens - in which case they would be obliged to charge TVA on sale or rental of the property.

 

[Russethouse]

[quote user="johndalton36"]

There are a couple of points I would like to make here.

First of all under EU legislation it is not possible for only bills from French artisans to be included in the renovation costs to offset against CGT. For those who have had English, Dutch, Belgian, German or Italian bonafide firms in to do the work there is no legal reason why their invoices can not be included provided they follow the prescribed format (IE state your full name and the address of the property on which the work was conducted, Vat number etc).

Secondly for those of you who are considering a major renovation project, and want to carry out some or all of the work yourselves, you would be better off buying a French company for the purpose, registering it for TVA so you can reclaim VAT for the bills along the way @ 19.6%, and paying VAT on invoices your company raises to yourselves as house owner at 8% where applicable. You will also get full trade discounts at the builders merchants.

For substantial projects the benefits will far outway the nominal accountancy costs, and when it comes to CGT you will surely have enough bills (rather than Mr Bricolage receipts) to have significantly reduced your gain.

[/quote]

John, Where did you find the information that this was a possibility or a good way to proceed?