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tax on house sale


bigears
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we are thinking of selling our french house in about two years time to go travelling around the world.  We will be facing quite a tax bill as we are uk tax resident.  What would we have to do to be able to sell it tax free?  We are early retirees with our main house in the uk which we have no intention of selling.  We can become french tax resident whenever we wish.   Our pensions have to be taxed at source in the uk.   
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we are retired and can choose where we reside

True, but as far as taxation is concerned your residence is based on facts not a simple choice. 

Any of these could be used as evidence to support your claim for French residence.

   Days residence in each country.

   Affiliation to healthcare  system ~ Contributions paid.  Mutuelle Assurance subscribed. 

   Car registration

   Submission of tax returns.

   Tax elections made for UK bank accounts.

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The above is quite true, but the one thing which establishes tax residency in France as far as capital gains issues are concerned is making a tax return in France, giving the address of the house you intend to sell in the future as your principal residence.

You may or may not be aware that you cannot choose where you pay tax. You are likely to be deemed French tax resident not only if you spend more than half of the year in France, but also if your principal residence is in France, any family or dependents are in France, or if your principal economic interests are centred in France, among other things. If this means you meet both British and French residence qualifications then the double taxation agreement will determine where you actually pay tax.

If you actually live in France then you are obliged to make a tax return, even if there is no tax due in France. As you are finding out, this can be more of a good thing than a bad one. One downside to be aware of is that if you do become liable to capital gains tax as a French resident then the rate you pay is effectively 27%, as against 16% for residents of other EU states (33% for non-Europeans)

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Who wrote this piece of advice?

hi

if you have declared it on your french tax form and you have to sell it, it sounds as if you will be stung for tax.  Before becoming french resident you should have considered all the issues with regard to your real estate assets.    I would think there is a legal way to avoid such punative taxes, spend money to obtain professional advice.

Although you do not appear to have clue about residency rules, I would follow your own advice.  The way you are playing ducks and drakes with your residency you will end up paying CGT in France and/or income tax in France and the UK, not to mention penalties and back dated health care charges.

If you should be tax resident in France and this is the only way that you will avoid CGT when selling your French house, you will have to back declare your income in France and pay any social charges and penalties plus healthcare charges etc.

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Ron,

BJ and I were trying to give constructive advice, but as you have found, Bigears did indeed write the paragraph you quote in response to somebody else's question about capital gains in France.

I suggest Bigears revisits the original topic. He/she obviously has suffered some form of memory loss - I am sure nobody would be playing silly games, would they. All I would add is that the possible loophole mentioned in that topic will undoubtedly be closed in two years time.

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Benjamin, surely bigears was merely suggesting that he would be willing to move to France and become resident here for a couple of years so that his French home would be his primary home when he came to sell it and thus attract no cgt in France. Which as far as I know is legal, still.

His reference in other posts was to seeking out information was it not?

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hi again

I am no expert in these matters and my advice to the person wishing to sell some property in australia whilst being a french resident was I thought good general advice.  Our ciurcumstances are much different and we will, if things are not clear take professional advice.  I would think there will be a clear course of action for our situation I don't think its complicated.  We can become french resident if wish for a couple of years and we can then revert back to being resident in the uk.  I do not wish to be french tax resident for any length as it sounds as if it can seriously damage your wealth.  As our pensions are from the teachers scheme we cannot be asked to pay income tax in france.  Next april/may I may be forced to fill out a french tax form if when I count up the number of days that we spent in france, I find we have strayed over 6 months.  Do I only have to fill out a tax form and declare my house our maison principal for the tax habitation or are there other things to do to prove residency so that the notaire selling our house in a couple of years time, will not tax us on its sale.  If you have any knowledge on the subject, please contribute.   Ron if this upsets you don't contribute.

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Thanks for coming back bigears.

I, like Ron have been having severe doubts in recent weeks of people, normally fairly recent members, starting off posting one question and then as answers roll in subtley changing the "facts" in their originally question and in general terms causing the majority of helpful posters to wonder if they are in fact genuine queries in the first place. Very few of us are blessed with the patience of Job like Will has.  [:D]

Back to the original question.

Yes, professional advice is normally the best advice but on one fact, as an amateur, I'm pretty sure of is that if you own two properties and sell one then you will be liable for CGT in the country of  tax residence.

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You need to check both the French and the Brit end on this. As I have said before, you need to find out the implications of different questions the tax authorities will ask and act accordingly in advance so your answers are appropriate and demonstrably true.. I wouldnt say too much in public here as intent might play a part. I say this because I casually asked my notaire how many times I had to file for tax before my house was free of cgt and he went a bit furry round the edges. However if you have paid tax for a year or three in France, I don't see they can touch you.

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Bigears

If you are selling your French property in the next two years, then to avoid CGT, you need to become tax resident here.  For belt and braces, I'd suggest you submit a first income tax declaration next April.  On that basis, your property will become your principal residence and you should have two income tax bills which will be more than sufficient proof that your house is exempt.

Your pensions will continue to be taxed in the UK as now and you will not be taxed in France. Forget the tax d'habitation - everyone pays that, tax resident or otherwise.

Once you return to live in your UK house, you will resume tax residency there.

 

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thanks for the replies, off to the vercors tomorrow for some mountainbiking and mountaineering.  Will I think file a tax return for the next two years.  Need to look at getting into the french health system, unfortunately I've not paid NI contributions in the last two years.  Anyway its another issue/question.  I'm sorry if it offends anyone but I do not want to pay unnecessary tax at my time in life, as I have zero earning potential. 
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Sunday Driver

I have no experience of this situation except when we were questioned several years ago by HMRC because we rented out our UK property and lived abroad. They were most concerned to know what we lived in. Apparently even they haven't worked out how to tax the loss on the eventual sale of our touring caravan. [:D]

In the circumstances of gaining French tax residency for the short period you descibe I cannot see how HMRC will not start asking questions and if they suspect manipulation on the part of bigears then he/she may have difficulty in convincing the UK tax authority of the genuiness of the situation other than an attempt at tax avoidance in the sale of a maison secondaire.

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It does seem too good to be true. But bigears has income and can live where he likes and for as long as he likes too I guess. It may depend how often he has come to France over the years and how long he has had the house. Usually you are taxed where you elect to live, but as you say and I said earlier, intent may be a factor.

But when he comes to sell his UK home then they will count the two years as a taxable capital gain wont they?

Nice one though.

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hi

we have a house in the uk that is not rented out,  we pay all the bills for it from our uk bank account.  We have no intentions of selling our uk address in the foreseeable future.  We have freedom to move our tax residencey as we are financially independent, ie. we do not have to work.  I want at all times to be legal but will use the system to my advantage.  What manipulation can there be on my part, apart from choosing where to reside?    If you play by the rules the british tax authority surely cannot pursue you. for an intent  Please only contribute fact as you have experienced it or as you know it  from  reading the regulations.  Sunday drivers response is encouraging, I think we do need to put our hands in our pockets and pay for current advice as we are playing with a reasonable sum of money. 

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[quote user="bigears"]

hi

    If you play by the rules the british tax authority surely cannot pursue you. for an intent  Please only contribute fact as you have experienced it or as you know it  from  reading the regulations.  Sunday drivers response is encouraging, I think we do need to put our hands in our pockets and pay for current advice as we are playing with a reasonable sum of money. 

[/quote]

1. You don't know what the rules are as evidenced by your request for information.

2. I quoted an experience that actually happened to us several years ago.

3. I suspect in this instance Sunday Driver is expressing an opinion rather than a hard fact as hard facts are sometimes difficult to come by unless you consult a specialist. You are encouraged by his response because it seems to tell you the best solution to your situation.

4. I agree wholeheartedly that you take professional advice.

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Some fairly wild statements are being made about what makes you a French resident.  There are apparently four criteria: here is one version, from a French source:

En droit fiscal français, une personne est considéré

comme ayant sa résidence fiscale en France lorsqu’est

rempli l’un des critères énumérés

à l’article 4 B du Code Général des Impôts,

à savoir :

- les personnes qui ont en France leur

foyer familial ou le lieu de leur séjour principal.

- les personnes qui ont en France leur lieu de séjour principal,

c’est à dire qu’elles passent en France plus

de temps que dans un autre pays.

- celles qui exercent en France une activité professionnelle

à moins qu’elle ne justifient que cette activité

y est exercée à titre accessoire.

- celles qui ont en France le centre de leurs intérêts

économiques.

My translation:

You are fiscally resident in France according to article 4b of the general tax code if any one of the following is true:

- France is where you have your family household or your principal place of residence;

- France is your principal place of residence*, i.e. you spend more time in France than in any other country;

- you exercise a professional activity in France, unless you can show that it is a subsidiary activity;

- France is where you have the centre of your economic interests.

* Yes, I know, this is a duplication, but that's what it says in the original.

Some of the things that have been mentioned, e.g. car registration, are a consequence of residence, not part of the definition.

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Allanb

I totally agree.

I mentioned car registrations, health etc as the kind of things that can be used as evidence to support Residence if one has been tardy in submitting returns. I know of cases where people have tried to claim residence whilst maintaining a UK registered car, and no affiliation to the French health service, and no tax returns despite years of "residence".........

As the French do not seem to have any of the apportionment concepts that are applied by the UK revenue, it does seem to raise some interesting possibilities

For example if I owned a holidays home for 5 years, then moved the family to France and closed up my house in the UK, I could  take up residence in France and then sell the house as my principal residence, possibly before actually registering for health, car etc. I think the only flies in the ointment are that the UK revenue could still consider the house as a second home , unless one had opted designate it as ones prime residence within two years of acquisition. Secondly one would almost be caught by the French requirement to nominate a professional guarantor to handle the arrangements whilst the sale was scrutinied by the higher echelons of the French tax system who may well have other ideas......

 

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Apologies in advance if this is clouding the issue, but doesn't there become a time when if you return to the UK you no longer qualify for NHS treatment automatically ?

I realise that perhaps the monitoring / detector system in the UK may not be that hot, but isn't this another piece of evidence to show that regardless of what a British passporter holder might deem to be his usual place of 'residence' the UK, not to mention France may draw the line in the strangest of places?

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