second homes and tax

[neil78]

Forgive me if this questiion has been asked a hunderd times before, but this is my first time on the site.

My question is, does any one know the situation in respect of selling a house in the UK after one has bought a place in France (to live and work) in terms of tax ?

The inland revenue said there were certain time limits one had to bare in mind that could ease the issue of tax. I don't know if I am liable and if so what I would pay tax on (the profit, the part minus the mortgage etc).

 

Any guidence would be gratefully recieved,

 

 

[Will]

As the title of your question was 'second homes and tax' I assume you are talking about a second home in Britain. This will be liable to UK capital gains tax on the profit made on the sale, less certain allowances and expenses, and subject to your capital gains tax allowance for the tax year.

If it had been your principal residence within a certain time (it used to be within the previous three years - not being British resident I can't say what the current situation is) then it would, under normal circumstances, be exempt from CGT. This allows you to rent out a house for a while before selling, for example.

If you are now French tax resident you may have to consider any possible implications on your tax position here - there is a double taxation agreement that means you only pay tax once on any individual sum, but it could be that you may have to make an additional payment to France if you would have paid more under the French tax system. The provisions for capital gains get very complicated under the dual taxation agreement and are constantly changing, so you would need to talk to a specialist with current knowledge of both systems.

French capital gains taxation is totally different.

[neil78]

Thanks Will for you reply.

I am currently renting out the house and as I think you say, if  i sell it within three years you I am exempt and  (I was told) after 5 years, due to another some other law.

My problem has been to locate a specialist who can give me details of the French position if I can avoid paying tax in the UK. My solicitor who deals only with french matters didn't know.

 

 

[Cat]

Will, I was under the impression (perhaps wrongly) that there is currently a tax loophole that would allow the sale of a UK home without incurring Capital Gains Tax, but that this loophole will be closed once the new double tax treaty between France and the UK comes into force.  The treaty was signed in January 2004, but has been subject to several delays, and is not now expected to come into force until 2007.

At the moment under the existing treaty there is a "double exemption" from CGT for gains realised by French residents on profits arising from the sale of UK properties. These gains would normally be taxable in the UK, but as the UK doesn't impose CGT on non-residents, here we have our loophole.

The exception to this would be if you were to return to live in the UK within 5 years of the sale of your UK home, but if you are planning to live permanently in France you would not be subject to tax, in either France or the UK, on the sale of your UK home.

If you have owned your UK home for more than 15 years though, you may be exempt from French tax even when the new treaty comes into force.

Of course things may have changed, and as you say Neil's best bet is to take advice from a specialist in this area.

[Will]

Cat 46, thanks for the clarification - that's what I was referring to in a roundabout way when I said about it being very complicated and constantly changing, as I did not know if the latest version of the agreement was yet in force or when it was planned (or even fully agreed). I think I am right in saying that you have to be fully French tax resident, i.e. to have actually made a tax return, meaning to have lived in France for at least about a calendar year (as applies in the case of French capital gains tax exemptions on sale of principal residences) in order to benefit from this temporary benefit. This may exclude many people who sell a house in Britain in order to finance purchase of a French home.

Although this information may help, you do need to consider specialist advice.

[adrianpmills]

I have researched the situation thoroughly as I am also a french resident with a UK property and I don't think any specialist could add much to Cathy in le Lot's reply, which is spot on (I don't mean to sound patronising by that).  Unless you will have owned the property for at least fifteen years then you could end up with a substantial liability to french tax if you sell once the new tax treaty is in force.  Even if you sell and return to the UK within the five years (ie: you will be caught under UK tax by the temporary non-resident rule) then the capital gain crystallising on return will be mitigated by the three year rule, taper relief and letting relief.  That risk could be not too bad - all depends on how long you have owned the property and how much it has gone up in value.

[neil78]

Thanks for all the advice. So, if I sell my UK house before 2007 I will, probably, have to pay no tax either in France or the UK, but after that date I will have to pay tax on the profit? Is that the difference in price between what I bought it for and the price I sell it for, or the profit I made after vacating the house? Do you know what the tax is , or is it some horribly complicated calculation (I somehow imagine that it's the latter!).

[adrianpmills]

Not too complicated.  The gain for a resident of France (over the whole period of ownership, not just since you left) is calculated at sales proceeds less acquisition costs (including allowable costs of improvement), less some allowances for indexation (inflation).  Tax is 15% plus 11% CSG (social contributions) of the gain - ie:26% in total.  There is a reduction of 10% per year of ownership after the first five years - ie: tax free after 15 years.

A capital gain would also count towards your income for the contribution of CMU (health) contributions.