Baseline valuation for French CGT on sale of house?

[Patmobile]

I originally tagged this question on to another CGT thread, which might be one reason for a lack of response.  Another reason might be that no-one knows the answer.  Well, here goes again....

We are considering selling our principal residence in France, a

property that includes within its outbuildings 3 very high quality and

popular holiday cottages that we have created.

In 2004 we

changed our marital regime to Communaute Universelle and this property

was revalued in the act at a much higher figure than we had paid for it

in 2000.  I understand that change to our marital regime could be

considered to constitute a change of ownership. 

We assume

that on the sale of the property French capital gains tax will be

payable on the proportion of the value of the property deemed to

constitute the holiday business.

Leaving aside the question of

how this proportion would be calculated, and/or negotiated, does any

forum member know which base value and date of acquisition will apply -

the original purchase price and date, or the date of our "new marriage"

in France?

Patrick   

[Will]

Tax will be calculated on the difference between sale price and purchase price, less allowances. So the price you paid is the one that counts, regardless of subsequent valuations. Otherwise it could provide a rather nice little loophole.

[Patmobile]

Just went to see an accountant who told me the valuation at the change of marital regime will be the one taken, as it counts as a change of ownership.

It's not really a loophole, as most people won't have to pay CGT on the sale of the principal residence, and, anyway, we lose the tapering off reduction after 5 years of ownership.  However, it looks as if, in our case, CGT on the gite element could only amount to a small sum, if anything. 

Just the news we were hoping for.

Patrick

[Will]

Well, fancy that. Just goes to show there's little lgic in the way these things work. Presumably you declared the capital gain when the place was revalued? (only joking). Good news for you anyway.

[Patmobile]

They say the taxman never gives you a present.  Well, now it seems that though our CGT liability may be small or non-existent, we might have to pay VAT on the element of the sale relating to the gites.  This is because they could be classed as new buildings, and VAT is re-payable if you sell a new building within 5 years.

I understand it would be only the difference between the VAT on the notional sale price and the VAT already paid on the builder's invoices etc. but as that was charged at 5.5% we may be liable for the other 14+% on around 150,000 euros.

Further consultations are due with the accountant and lawyer but it seems you just can't win.

Patrick

[Eslier]

Now, I'm no expert in this matter but my initial reaction would be . . .

As you created the gites, I asume that you bought the whole property as a residential habitation in one puchase transaction. The key here seems to be how you go about the sale. If you are selling the property (as far as the Notaire is concerned) as a single transaction private residence then I can't see that there would be any CGT to pay. If you are selling the property as "fonds et commerce" business then that's a different matter and I can see why CGT becomes payable but I would have thought that this might over complicate the matter for a simple gite business.

This might be quite naiive of me to think that it's as easy as all that to avoid paying CGT so I would be intrigued to hear the views of anyone who really does undrstand the ins and outs of it all.

[BJSLIV]

If you create a new property, even your main residence, if it is sold within five years VAT (@19.6%)is payable on the profit.

[Patmobile]

[quote user="BJSLIV"]If you create a new property, even your main residence, if it is sold within five years VAT (@19.6%)is payable on the profit.[/quote]

Yes, that may be  true, but we didn't exactly create new buildings, we just "amenaged" new gites within the existing walls of the old stables.  What's more, they appear to be saying we have to pay VAT on the whole cost of the building work, even though it's arguable that no profit has resulted.

No doubt we'll find out what the expert opinion is quite soon.

Patrick

[BJSLIV]

But large scale conversion of a barn into a gite is usually counted as a newbuild.(IE Creation of additional habitable space)

You don't pay VAT on the building cost, they assume that the sale price includes VAT at 19.6% and deduct from that any VAT that has been paid for the building works.

The tricky part in your case will be agreeing the base value apportionment between the house , the outbuildings, and apportioning the building work between anything done to the house and the creation of the gites. 

Sounds like a whole bundle of fun and games.

[londoneye]

Hi

I am bringing this old post back to life (!) because are in a similar situation regarding our house and three converted out-buildings.

However, I have read that the law regarding VAT on resale within 5 years has changed (March 2010) and I think we do now not have to pay it on the conversion properties. I will go to speak to a notaire in due course, but does anyone know if this is correct.

We will of course (or I assume so) have to pay CGT on the three conversion properties, but not on our own house (although how they align any gains between the four properties will be fun I should imagine).

I hope I am correct but can anyone clarify for me please as it will make a huge difference to any profit we make.