Capital Gains Tax on Property, Shares and Goods
How is CGT applied to properties, shares and movable goods belonging to foreign residents and non-residents in France? Find out here...
Residents of France are subject to fixed rates of capital gains tax of 19 percent on real estate properties and moveable goods. Shares are taxed at the scale rates of income tax. Social charges are applied on top, which are now 15.5%. There are also surtaxes on property gains.
Non-resident individuals owning property in France also pay capital gains tax at 19% plus surtaxes, regardless of where they live. They are also subject to the 15.5% social charges, but only on real estate capital gains.
Capital Gains on Real Estate
Besides the fixed rate of 19%, surtaxes have been applied to property gains as follows:
|AMOUNT OF GAIN||AMOUNT OF GAIN|
TOTAL TAX RATE
(19% PLUS SURTAX)
|TOTAL RATE INCLUDING SOCIAL CHARGES |
|Up to €50,000||0%||19%||34.5%|
|€60,001 – €100,000||2%||22%||37.5%|
|€110,001 – €150,000||3%||22%||37.5%|
|€160,001 – €200,000||4%||23%||38.5%|
|€210,001 – €250,000||5%||24%||39.5%|
For each band, there are reliefs for the first €10,000 above the band.
Reductions and exemptions
The disposal of the main home is exempt from capital gains tax, provided it is used as an habitual and actual residence at the time of sale.
It is an ‘all-or-nothing’ relief and the gain can become wholly exempt even on a property that may previously not have been the main home for the whole period of ownership, provided it was the actual and habitual main home at the time of sale. Conversely, leaving a property without having sold it could mean losing the relief entirely when you do come to sell, even though it may have been the main home for many years beforehand. However there can be a 12-month breathing space if the property is put on the market when still the habitual home, though the owner then cannot remain in it.
This main home exemption is unlikely to be available to anyone who is not fully integrated into the French tax system and registered for tax purposes.For other properties, once an individual has owned the property for six years, a taper relief system lowers the amount of tax and social charges you have to pay, until no tax is payable at all.
For capital gains tax, 6% is deducted per year after the first 5 years of ownership up to and including year 21 (i.e. after 21 years of ownership the reduction is 96% - 16 years at 6%). Four per cent is deducted for year 22, giving full exemption from tax after 22 years.
The reductions for social charges are 1.65% per year after the first 5 years up to and including year 21 (i.e. after 21 years of ownership, the reduction is 26.4% - 16 years at 1.65%). For year 22 the reduction is 1.6%, and from years 23 to 30 it is 9%. So the reductions are weighted towards the last 8 years of ownership, and total exemption from social charges is achieved after 30 years.
Where a property that is not the main home is sold the gain may be exempt from tax if:
- The individual did not own his main home during the four years preceding the disposal of the property, and
- The proceeds of the first sale are reinvested in the acquisition or construction of the individual’s main house.
Note that the French 2017 Budget was amended during parliamentary process to remove this exemption – however, as at 28th November 2016 the final decision was yet to be made.
There are also age-related exemptions. Individuals in receipt of a state pension and holders of an invalidity card are exempt from capital gains tax in France on the sale of real estate, provided they meet the following two conditions:
- They did not have a liability to wealth tax in the tax year preceding the year before sale (i.e. 2 years before the year of sale); and
- Their taxable income in the tax year proceeding the year before sale (i.e. 2 years before the year of sale) was below a certain level. For 2016 gains the 2015 income limit is €10,686 for the first part of the household, and €2,853 for each additional half part
Calculating the gain
The gain is the difference between sale and purchase price. You may then deduct 7.5% of the purchase price for acquisition costs (or more if documented), and actual improvement or enhancement expenses provided they have not already been taken into account of income tax purposes and are not routine maintenance expenses (redecorating etc). The improvements must have been carried out by registered contractors and proof of payment is required.
Where a property is sold more than 5 years after it was purchased, improvement costs can be valued as a flat 15% of the purchase price. The seller is not required to provide evidence of actual costs incurred, or even whether any improvements have actually been carried out.
Capital Gains on Shares
Gains on movable assets such as shares and other financial assets are taxed at the household’s marginal tax rate. Social charges of 15.5% apply to all gains. This brings the total tax rate up to 64.5% on movable assets.
Since January 2014, there is a general taper relief of 50% for investments held for between two and eight years and 65% thereafter. So where a taxpayer holds shares for at least two years, 50% of the gain on disposal is free of tax, and if held for more than eight years, 65% of the gain is tax-exempt. These exemptions do not apply to social charges, which remain payable on the full gain at a flat rate of 15.5%.
There is also a more generous relief governing the sale of shares relating to small and medium companies (SME) created within the last 10 years, and which are based within the European economic area (EEA). This relief also applies to sales of EEA SME shares by business owners on retirement, as well as shares sold within a family. Those shares may benefit from extended taper relief as follows (this does not apply to social charges):
|HOLDING PERIOD AFTER 1 JANUARY 2013||TAXABLE BASIS||SOCIAL CHARGE BASIS|
|Below 1 year||100%||100%|
|Between 1 and 4 years||50%||100%|
|Between 4 and 8 years||35%||100%|
|After 8 years||15%||100%|
Losses can be carried forward 10 years and offset against future gains on the sale of shares and securities (not other assets).
Other Moveable Goods
Capital gains tax is also payable on other moveable goods such as jewellery, antiques and works of art.
The following are exempt from capital gains tax:
- Household goods
- Other moveable goods where the proceeds are less than or equal to €5,000
- Other moveable goods held for more than 12 years
The gain is reduced by actual acquisition costs and improvement expenditure. Furthermore the gain can be reduced by 5 percent for each complete year of ownership after the first two years and so reduces to nil after 22 years. The taxable gain is taxed at a fixed rate of 19%, plus social charges at 15.5%.
For chargeable items such as works of art, collectibles, antiques, jewellery, precious metals the taxpayer can opt for a special withholding regime. The withholding tax rates are 10% for precious metals or 6% for jewellery, works of art, antiques or collectibles. Social charges of 0.5% are added, so the total withholding tax is either 10.5% or 6.5% respectively.
Sale of Land Divided into Plots
Lotissement is the French term used to describe the process of buying a piece of land with the specific intention of dividing it up into several plots before selling it at a profit. Any profits on the sale of the plots will be subject to income tax in the same way as profits from a trade. A non-resident carrying out such activities will be liable to 19 (or 33,1/3 if the sale is made by a company) percent withholding tax on any profits of this nature, subject to any double tax treaty provisions.
Where the land was not specifically acquired for this purpose, any gain on sale will not be taxed as profits from a trade, but as a capital gain under the normal rules for gains made by individuals. Development costs can be taken into account.
Payment of Capital Gains TaxThe tax due from the sale of real estate is declared on Form 2048 IMM.
The capital gains tax due is calculated by the notary and withheld at the time of sale. The notary then remits payment of the tax, together with Form 2048 IMM, within a month from the notarised deed of sale. Where the gain is exempt (e.g. sale of main home), or no tax is due (e.g. property has been held for more than 30 years), or when a loss has been made, there is no need to complete the Form.
Non-EU, Iceland or Norway residents are required by law to make a capital gains declaration supported by a tax representative accredited by the French Tax Authority. The SARF is one such representative which guarantees the accuracy of the calculation and the payment of the tax, and will deal with any litigation which may arise. The SARF usually charges 1% of the sale price, but you are not obliged to appoint them.
The non-resident can also appoint the purchaser, an accountant or Notaire as tax representative if they have been accredited by the French tax authorities. You do not need to appoint a tax representative if you are liable to tax on your French gain.
Exit Tax on Share GainsAn exit tax is levied on share gains made by individuals who leave France.
The tax applies to the portion of the gain accrued when the individual was resident in France, and it is charged at the scale rates, plus social charges of 15.5%. The measure affects individuals who are French resident for at least six years over the last 10 years, and either with direct or indirect shareholdings of more than 50% of the companies benefits (together with other members of the household), or where the shares are valued at over €800,000.
The tax charge arises the day before the individual leaves France, but there is provision for an automatic deferral of payment where the individual moves to an EU member state; or an EEA member state that has an administrative or mutual assistance agreement with France; or another country where there is a tax information exchange agreement in place and the individual has moved for professional reasons.
However, tax and social charges on the unrealised capital gain may be cancelled (or the tax, - but not social charges - reimbursed if it was already paid):
- After a period of eight years following the taxpayer's departure from France, or
- If the taxpayer moves back to France and still holds the shares, or
- Upon the taxpayer's death provided the shares are still in the deceased’s estate, or
- Or if the shares are given
An interesting way to mitigate the exit tax is to invest in the same portfolio via an assurance-vie. This allows French resident to avoid this exit tax when they change residency.
- The French tax authorities (Direction Générale des Impôts) have an online service in English that helps calculate French tax obligations
Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual is advised to seek personalised advice.
Blevins Franks are the leading international tax and wealth management advisers to UK nationals living in Europe. Visit www.blevinsfranks.com.