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Tax Upon Selling Your House


Colandhelinfrance
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[quote user="Colandhelinfrance"]

Hello folks,

Can anybody tell me if they have any knowledge on the tax laws when selling your house in France please?

I have heard that it all depends on how long you have owned the house for etc.

[/quote]

I presume that you are referring to capital gains tax (taxe/impot sur plus-value), which has been done to death - and beyond - in very recent postings.

The capital

gains tax position of a person who is French resident is that they have

no tax to pay on the capital gain realised on the sale of their

principal (habitual) residence.

However,  if you are non-resident in France or have not been

resident in France for 2 years, there IS capital

gains tax to pay and this is at 16% of the gain after

allowances for an EU citizen, and 33% for a non-EU citizen. Also, a person (whereever resident) selling property which is not his/her principal residence pays

the same 16% capital gains tax on the profit after allowances. If they are French resident they will also pay 11%

social charges on the gain.

Hence for a property that is NOT your primary residence (whether you are UK or French resident), to calculate the gain, you start with the sale price net vendor and deduct the initial purchase price including purchase costs, the value of any improvement works done to the property for which you have valid receipts and the disposal costs. 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 capital gains tax to pay in France. You simply multiply the gain after allowances and taper relief by 16% (note that if you are French resident you will also have to pay social charges of 11% on the gain after allowances)

If you are UK resident and domiciled then you will also have to declare the sale to HMRC and pay CGT on the gain after allowances - in the UK taper relief kicks in in year 3 of ownership but reduces the taxable amount by only 5% per year until reaching a maximum reduction of the taxable amount of 40% after year 10. Hence after year 10 in the UK you would pay CGT charged at your maximum imposable rate calculated on 60% of the gain after allowances. Any French capital gains tax paid can be offeset against your UK capital gains tax liability.

If you want to check this, please look at the French Fisc site (www.impots.gouv.fr) and the UK tax site www.hmrc.gov.uk. It is all there.

Could one of the moderators kindly put this posting where it belongs in the Finance or Legal section please?

Regards

Pickles

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A clarification and a correction.

Where is the two year french residence rule from?  I'm not aware of it.

UK tax is not charged at 40% or the 'maximum imposable rate'.  Instead:

The amount chargeable to CGT is added onto the top of income liable to income tax for individuals and is charged to CGT at these rates:

  • below the starting rate limit at 10%,

  • between the starting rate and basic rate limits at 20%,

  • and above the basic rate limit at 40%
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[quote user="avinalarf"]

Where is the two year french residence rule from?  I'm not aware of it.

[/quote]

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 CGT.  I understand that this ruling applies to the sale of up to two French properties.

 

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[quote user="avinalarf"]

Where is the two year french residence rule from?  I'm not aware of it.

[/quote]

Apologies. I went into "short circuit" mode. I think SD has clarified the situation.

[quote user="avinalarf"]

UK tax is not charged at 40% or the 'maximum imposable rate'.  Instead:

The amount chargeable to CGT is added onto the top of income liable to income tax for individuals and is charged to CGT at these rates:

  • below the starting rate limit at 10%,

  • between the starting rate and basic rate limits at 20%,

  • and above the basic rate limit at 40%
[/quote]

Thanks for this correction. Again, I was cutting corners. Apologies.

Maybe if I cut and paste the postings we can put this as a FAQ?

Regards

Pickles

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The following is the suggested FAQ – those in the

know, could you please check it for errors? The final version can recognise individual's contributions if required.

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:

French resident: The CGT position of a person who

is French resident is that they have no French CGT to pay on the capital gain realised

on the sale of their principal (habitual) residence. The main requirement appears to be that it is their main (habitual) residence on the date of sale. If the sale concerns a

second home or other property (eg investment/let property), then CGT is

chargeable at a rate of 16% of the gain after allowances. There will also be a

liability for 11% social charges on the gain after allowances .

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

possibly CGT in your country of residence) 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, and 33% for a non-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 tax

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

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

sale to HMRC and pay CGT on the gain after allowances - in the UK taper relief starts

in year 3 of ownership but reduces the taxable amount by only 5% per year until

reaching a maximum reduction of the taxable amount of 40% after year 10. Hence

after year 10 in the UK

you would pay CGT calculated on 60% of the gain after allowances. The amount

chargeable to CGT is added onto the top of income liable to income tax for

individuals and is currently charged to CGT at these rates (note the deletion

of the 10% starting rate band was announced in the 2007 budget):

  • below the starting rate

    limit at 10%,
  • between the starting rate

    and basic rate limits at 20%,
  • and above the basic rate

    limit at 40%

Any French capital gains tax paid

can be offset against your UK

capital gains tax liability. Note that if you purchased the property before

1998, the calculation is more complicated.

The French Fisc site

(www.impots.gouv.fr) and the UK

tax site www.hmrc.gov.uk should be consulted for up-to-date details.

 

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