Capital Gains tax on selling Residence Secondaire

[Minouche]

I have become totally confused over the capital gains on residence secondaires.

I appreciate that there would be capital gains tax payable both in UK and in France based on the dual taxation agreement, but what is the actual percentage of the gain that the French would take and is there still a length of ownership allowance?

I realise that the new President could well bring in new taxation laws but would be interested to know up to date position.

I know in UK capital gains does depend on your taxable income level, going up to 40%

Any information would be greatly appreciated.

[Pickles]

A search in the archive would reveal the following:

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.

[bigears]

Pickles can you clarify if the french authorities notify the uk authorities of a sale, if not the uk tax can be ignored.  Why pay unnecessary tax, you don't get a medal.

[Sunday Driver]

UK CGT tax liability is not 'unnecessary tax' - it's compulsory. You don't get a medal for paying it, but there again, you don't get fined for tax evasion.....[8-)]

 

[trevour]

Pickles may I query your statement that "2 consecutive years of tax residency is required" to avoid CGT  on a declared primary property.

I undestood from my Notaire that only 1 year's Tax return was necessary!!!!.- or did I miss a point of order?

The rest of your references are excellent.

Thank you

[Sunday Driver]

As Pickles has stated, the two consecutive years of tax residency applies to persons now living abroad and no longer physically occupying their former principal residence. 

For persons currently occupying their principal home at the time of sale, a single tax return will clearly provide the necessary proof of residency, although other proofs are acceptable.

 

[Minouche]

Hi Pickles

Thank you so much for such a detailed reply - very helpful. 

Minouche