Capital Gains

[keith]

Can anyone help please? We are UK residents with a holiday home in France.  We are thinking of selling the French house and just wanted to clarify the capitals gains tax position.  I understand as UK residents we would have to pay 18% on the gain after deducting allowable improvement costs  but wanted to know whether we would be able to use our £8000 annual allowance from the UK and whether there would be any adjustment back in the UK due to the 16% being charged here rather than 18%?

 

any help/ tips much appreciated

 

reagrds

 

Keith  

[Pickles]

[quote user="keith"]Can anyone help please? We are UK residents with a holiday home in France.  We are thinking of selling the French house and just wanted to clarify the capitals gains tax position.  I understand as UK residents we would have to pay 18% on the gain after deducting allowable improvement costs  but wanted to know whether we would be able to use our £8000 annual allowance from the UK and whether there would be any adjustment back in the UK due to the 16% being charged here rather than 18%?[/quote]

Capital Gains Tax (CGT) on sales of French Property

(Impot sur plus-value)

Whether or not there is capital gains tax to be paid

in France or elsewhere on

the sale of a property in France

depends on several factors:

If you are resident in another EU member state and

you have previously been fiscally resident in France for two consecutive

years, then the sale of a French property is free of French CGT.  From

2006 this ruling applies to the sale of up to two French properties provided

that the second sale is of the only residence in France of the non-resident AND

that the second sale takes place more than 5 years after the first sale that

was exempted from CGT.

If you are non-resident in France and have not previously been fiscally

resident in France for two consecutive years, there will be French CGT (plus

UK CGT) to pay on the sale of any French

property: this is charged at a rate of 16% of the gain after allowances for

an EU citizen.

To calculate the gain, you start with the sale

price net vendor and deduct the initial purchase price including purchase

costs, the value of certain types of improvement works done to the property for which you

have valid receipts and the disposal costs. In France

there is then a form of taper relief so that for every additional year after 5

years of ownership the taxable gain is reduced by 10% until after 15 years of

ownership there is no CGT to pay in France. To calculate the French tax

liability you simply multiply the gain after allowances and taper relief by 16%.

If you are UK resident and domiciled then you will have to declare the

sale to HMRC and pay CGT on the gain after allowances (including your personal capital gains allowance); assuming that the sale takes place in the next tax year (April 2008 onwards) there will no longer be any UK taper relief and you will pay 18% of the taxable gain. Any French capital gains tax paid

can be offset against your UK

capital gains tax liability thanks to existing tax treaties.

Note that your notaire may need to withhold some monies to ensure that the Freench CGT bill is paid.

Regards

Pickles

[nomoss]

French CGT changed on 1st January 2004 :-

http://www.frenchentree.com/fe-legal/DisplayArticle.asp?ID=851

http://france.angloinfo.com/countries/france/capitalgain.asp

There is no longer any taper relief for French citizens or residents

 

Edit: Added more recent link and note

 

[Will]

[quote user="nomoss"]

French CGT changed on 1st January 2004 :-

There is no longer any taper relief for French citizens or residents

[/quote]

Yes there is, that is when the 10% per year taper relief after five years of ownership came in, meaning that tax tapers to zero after 15 years, just as Pickles' very clear post says. Previously you had to own a house for 22 years before it was free of tax.

http://www.notaires.fr/notaires/notaires.nsf/V_TC_PUB/LOGEMENT-PLUS-VALUES-IMMOBILIERES is, I feel, more authoritative than the English-language sites above.

 

 

[nomoss]

I apologise for my misleading post. I confused French CGT with that in Spain.

[Will]

No problem - with every country doing things differently it's a very confusing subject, I know [:D]

[Tia]

So if I have understood correctly if we bought a house for Euros 112,000 and it is now worth Euros 180,000 =  Gain of Euros 68,000 of which we have to pay 16% of this figure for French CGT ie 10,880. We then have to declare this to in the uk and pay a further 18% on Euros 57,120 so we would end up with Euros 46838.40 profit ????

[phylisbide]

Don't forget that you can offset any invoices from registered artisans - including the cost of materials if they are included on artisan invoice only. If you have purchased any building materials yourself these are disallowed. Phylis

[Benjamin]

When we purchased this house at the start of 2005 the original final signing date had to be put back for two weeks because the Notaire realised at the last minute that from January 2005 a new law had been introduced requiring an additional payment from a non-French resident second home owner.

We didn't take a lot of notice at the time since it wasn't affecting us but I think that some time back there was a discussion on this forum about this payment and various opinions were expressed describing it as both a "tax" and also an "insurance premium" aginst an inncorrect capital gains tax being paid.

My senility may be moving on apace. Can anyone else remember this as it may be relevant to this question?

[Benjamin]

http://www.completefrance.com/cs/forums/1146027/ShowPost.aspx

This post (sorry I can't make it clickable) and particularly the posting by BJSLIV seems to make reference to this other charge when selling as a non-resident.

[Pickles]

[quote user="Tia"]So if I have understood correctly if we bought a house for Euros 112,000 and it is now worth Euros 180,000 =  Gain of Euros 68,000 of which we have to pay 16% of this figure for French CGT ie 10,880.[/quote]

OK so far (assuming that you have already taken into account the purchase costs and any allowable improvement works...)

[quote user="Tia"] We then have to declare this to in the uk and pay a further 18% on Euros 57,120 so we would end up with Euros 46838.40 profit ????[/quote]

Nope. The 18% is calculated on the gain - ie it is 18% of 68000 = 12240. BUT then you offset the amount you paid in France (10880) and you pay the remainder to HMRC (ie 12240-10880 = 1360)

Hence your gain after tax is 68000-12240=55760

(edited the next day ...) Actually, the above calculation for the UK CGT assumes that you have already used up your CGT allowance for the year - if you haven't, and there are two of you, then the first 18000 - odd pounds sterling is not taxed in the UK (CGT allowance per person for 2007/8 is 9200 gbp per person). Hence in the above example, if you haven't used up your UK CGT tax allowance, and assuming for the sake of round numbers that the CGT allowance of around 9000 GBP per person translates as 12000€ per person at present and there are two of you, then the first 24000€ of your gain would be free from UK CGT. That means in this case that the UK CGT tax liability would be 18% of 44K€ = 7920€. However, as you will have paid some 10880€ to the French Fisc, then you would have no further liability to the UK taxman, as the 7920€ is more than offset by the 10880€ French tax.

Regards

Pickles