How to avoid tax payments when selling a second home in France?

purples · October 22, 2005

We have two houses in France and may decide to sell one of them some time in the future. We have carried out extensive renovation work on both properties and kept hold of all receipts for the work carried out and materials.

If we sell one of the properties we believe that we may have a huge tax bill as it is a second property we are selling. Someone told us that if we keep hold of all of the receipts showing how much money we have spent on the property and also say that we are spending the rest of the money to upgrade the property that we will be left with, this may help avoid the heavy tax bill. Can anyone shed any light on this subject please?

Many thanks in advance -

The Purple's

Teamedup · October 22, 2005

afaik the only bills you can offer against the tax bill is if the work is done by artisans.

purples · October 23, 2005

Thank you for your response.

Would English bills be good enough? Most of the work has been carried out by my husband who is a self employed plumber in England, could he write a bill to himself?

Will · October 23, 2005

No - the only invoices which can be considered are those from tradesmen registered for French TVA (i.e. with valid SIRET number and not micro-businesses) which detail fully all the work carried out and materials used, and clearly show the name of the customer and the address at which the work was carried out (obviously this must be the same as the house being sold). If no such invoices are available then there is a standard allowance which the notaire can apply for repairs and renovations etc.

The tax payable reduces on a sliding scale between 5 and 15 years of ownership, so after 15 years it is zero. You may escape tax liability under certain circumstances if it is a necessary move, e.g. for work or health reasons.

Otherwise about the only legal way to avoid capital gains tax is to have been a French tax resident in the previous year, and be selling your principal home. The tax payable is 16% on the profit, so it is unlikely to be 'heavy'. Note that if you are French tax resident selling a second home there is an extra 11% social charge, and if from outside the EU you will be taxed at 33%, so under these circumstances it can be heavier.

BJSLIV · October 23, 2005

If your husband is a self employed plumber in the UK, I assume that you are not registered for Income Tax in framce. In which case both the houses you own will be classed a second homes and liable to CGT in the way that will has described. Moreover you will also be liable to CGT in the UK at whatever your marginal rate of Tax is. Roughly if you are paying tax at 22% you would pay a further 6% on top of whatever you have paid in France (Less any CGT alowances you may have remaining in the UK).

It would not be a good idea for your husband to issue invoices to himself from the UK. Firstly it wouldn't count, and secondly you might start unecessary hares running about working illegally in France.

It is worth bearing in mind that if you have made major additions to the property, added space in converted barns or the like. If you are selling withing 5 years then that part of the sale would be subjected to VAT at 19.6% , and you may be asked to provide proof of the ten year guarantee which would be give by French artisans. If you have simply tidied up the existing property, then at least these particular two problems are unlikely to arise.

Viv · October 23, 2005

When we had our new house built, there was a certain section on the contract that allowed a 'future allowance ' for the work that we did ourselves. As we have not sold this house we have no idea how it yet works, but does this just apply to new houses?

If a husband and wife were in a position to own a property each, would this make the capital gains taxes any easier?

jamesg · October 23, 2005

Hello purples,

When we were buying our house in April, the notaire said that there was a change in the tax law in January, which allowed a non tax resident owner to sell one property only without liability for CGT in France.

Worth getting professional advice on this I would think, unless someone has really up to date knowledge of the situation and knows better.

BJSLIV · October 23, 2005

To avoid tax on a French maison secondaire as a person fiscally resident elsewhere in the EU, you must previously have been fiscally resident in France for at least two years.

Will · October 24, 2005

"If a husband and wife were in a position to own a property each, would this make the capital gains taxes any easier?"

In France, the general rule is that you are taxed as a household rather than individuals. There may be ways of setting things up more advantageously for your circumstances, but this would most likely need to be done when the houses were first bought and would need qualified professional advice.