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40% Capital Gains Tax?


phil
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We were in the process of buying a house in France when a friend told us that unless our property in the UK is up for sale at the same time we would be liable for Capital Gains Tax.  I have been unable to find any further information about this, and am unsure whether he was referring to French or British tax.  Can anyone shed any light on this please?
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[quote user="phil"]We were in the process of buying a house in France when a friend told us that unless our property in the UK is up for sale at the same time we would be liable for Capital Gains Tax.  I have been unable to find any further information about this, and am unsure whether he was referring to French or British tax.  Can anyone shed any light on this please?[/quote]

How can you be liable for CGT when you are BUYING something??  You are only liable when you sell, and only then if you bought it purely as an investment rather than a main home.  If/when you sell your UK property and it has been your main home then you are not liable for CGT.  CGT rules in France are rather more complex - you do not pay CGT in France if your French property is your main home - that is considered the case if you have paid income tax here for 2 years (actually 2 years worth of declarations, so could be as little a 1 year and 1 day).  If it is not your main home then CGT is payable at the full rate for 5 years and then decreases on a sliding scale up to 15 years when it becomes zero rated.  Now it is a bit more complex than that as well.. if you live in France then CGT is 27%, but if you can prove you have a main residence in the UK then you only pay 16%.  I couldn't get my head around giving an advantage to non-residents, but that is what our immobilier has just told us this week - we're considering selling our house here to move to something bigger. We are resident and working here, but only for 7 months so CGT may apply - tho it also seems that whether CGT applies is at the discretion of the notaire - we are waiting for a definitive response from the notaire next week.

Matt

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The rate for capital gains tax in France is, strictly speaking, 16% for all European residents. For non-Europeans, or for certain transactions such as some business premises, it is 33.3%. The advantage for non-residents is that they are not liable for 'social charges' (CSG, CRDS and PS) which are imposed at 11% on unearned income, and capital gains on house sales count as unearned income. So adding on these charges you get an effective rate of 27% for French residents. I hope that explains it.

The decision on liability to CGT rests with les impots. The notaire has to calculate it and collect it, and some notaures seem to use a bit of discretion, though if they get it wrong the tax people can still collect tax from you afterwards if they feel it should be liable. Sometimes you have to employ a tax specialist if your potential liability is high and/or situation unusual. In your case if you are working in France, and paying taxes and cotisations, then I think you should count as resident for CGT purposes, particularly as you are resident for more than half the year, and not have to pay tax on a main residence, regardless of any houses you have elsewhere. However, if les impots decide that your centre of financial interest is elsewhere, and that you are UK domiciled though French resident, they may decide that your French house is not really your main residence and thus you are liable to tax - it depends on what your working and financial arrangements are reference to UK. So the notaire is right to seek a definitive answer.

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A very interesting point and one which I must admit had totally escaped me.

We have already bought in France and are awaiting completion of the sale of our UK property which, incidentally, we have owned and resided in for nearly 20 years, before moving over.

Barring strife, pestilence or acts of God we intend to stay in France for at least 10 years although even after we have moved over I plan to continue working in UK for a while (and paying UK tax) but will still be in France for more than 183 days and that, coupled with the fact that our French house will be our main (only) residence, should firmly establish my residency.

I do plan to see a specialist tax adviser and this is one more item I will add to my list of points to cover.

I wonder how many people who've bailed out after a relatively short time in France have been caught out for some sort of CGT ?

 

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I am not sure about what you would be liable for on the sale of a UK asset whilst a resident in France, but it sounds like income of some sort to me and income of any sort if you are a French resident is taxable. As far as your main residence in France, if you sell in the first 5 years, any profit you make over what you paid for it is taxed at 60%, after 5 years it goes down at 5% per annum until after 15 years you can keep all the equity tax free.
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[quote user="pugwash"]As far as your main residence in France, if you sell in the first 5 years, any profit you make over what you paid for it is taxed at 60%, after 5 years it goes down at 5% per annum until after 15 years you can keep all the equity tax free.[/quote]

Maybe I'm missing something here, but as is mentioned earlier in the thread, in the situation where a person has his/her principal residence in France, then any gain on the sale of that residence is exonerated from French CGT - I've just re-checked it on www.impots.gouv.fr. Have you jumped a step that I missed, Pugwash? Or could you please edit it to add a little detail to your post to clarify what you are saying?

Regards

Pickles

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Are you saying that the advice to consult a notare or tax specialist is complete rubbish, because that is what people are normally advised to do?

Can you be more specific about which link to follow on the notaires web site? I can only find one called 'realized gains on real estate' which is well out of date as it talks of 'proposed changes in 2004', which is basically the curent system, though there have been minor changes since then.

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[quote user="pugwash"]And yet, avinalarf, people keep asking for it, and people keep supplying it  ???[/quote]

Yourself included! [:)]

Every reference I find quotes the same - 16% non-resident or 27% if resident.  Could you provide more information on your figure of 60% please?

Matt

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[quote user="pugwash"]

http://www.notaires.fr/notaires/notaires.nsf/V_TC_PUB/ENGLISH-HOMEPAGE

I wasn't completely accurate, but read it for your selves, open the link and click on the relevant section.

[/quote]

Again, this link confirms that if you are referring to the capital gains tax position of a person who is French resident, then they have no tax to pay on the capital gain realised on the sale of their principal (habitual) residence.

However, there IS capital gains tax to pay if you are non-resident in France or have not been resident in France for 2 years, and this is at 16% of the gain after allowances for an EU citizen, and 33% for a non-EU citizen. A French resident selling property which is not his/her principal residence pays the same 16% capital gains tax on the profit after allowances, PLUS 11% social charges (hence the 27% figure).

Regards

Pickles

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I have freinds who moved here three years ago.  They owned their UK property outright and took out a mortgage to finance the purchase of the house in France.  They could not sell their UK home so rented it out.  Last November they finally managed to sell.  Are they liable for CGT or not? I have always imagined so and it seems that your comments confirm this, Pickles.
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Advice to consult a tax specialist is good advice. 

As I said I don't wish to be specific but there I have seen plenty of advice given on threads such as these which is completely wrong .  Sometimes the rules referred to are way out of date, sometimes misinterpreted and sometimes seem just guesswork or repetition of hearsay.  There is also plenty of excellent advice too from people who are clearly experts.  If the reader could know how to distinguish which is which then they could rely on the good advice and would often not need to consult a tax specialist.

I don't wish to put people down who are trying to help, but I think that unless one is sure of the facts then they shoud say so.  There's no shame in that.  You could say, for instance:

"Four years ago when I sold my house the rules were........."  or,

"I think the rules are .... but 'm not really sure" or,

"A friend told me that ........." or,

"I'm no expert but my understanding is............."

A reader would then know that such an opinion was just so, rather than a matter of fact.

 

 

 

 

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Cooperlola,

Under the exisiting UK France tax treaty then the present sale of the UK property whilst french resident will not attract a capital gains liability in either country.  Basically the loophole is that the gain on sale of immovable property is taxable in the country in which it is located.  But non-Uk residents are not liable to pay capital gains tax on Uk property.  This loophole would change once the new treaty is ratified and implemented.  Then the gain would be taxable in France with a deduction for UK tax (which would be nil).  The last time I checked, which was several months ago, there had been no progress on ratification.  Also under the current rules then if your friends return to the UK within five years of their having left then a capital gain might crystallise upon their return if they sold their house in the meantime - it depends on how long their UK house was previously a main residence and how long it was rented out over the whole period of ownership.  From what you say I doubt there would be much of a liability, if any, but that's a guess without more information to give a proper answer.  One caveat under the existing treaty - found on a similar thread on another forum - the Paris tax office has recently claimed that french capital gains tax would be payable under the current treaty by a french resident on the sale of a UK property.  This is contrary to Sykes Anderson tax lawyers advice which they say was confirmed with several french tax offices.  However, I think the french tax people may have found a lucrative opportunity that they wish to exploit and may be prepared to test in court.  Before selling my UK property I would ask a tax lawyer how confident they would be of defending the current tax free position.

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