Capital Gains Tax on Property, Shares & Goods in France

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Capital Gains Tax on Property, Shares & Goods in France

Residents of France are mostly subject to fixed rates of capital gains tax of 19 percent (an increase from 16 percent in 2010) plus social charges, which increased from 12.3 percent to 13.5 percent on 1 October 2011.

Non-residents pay tax on French property gains at 19 percent if resident in the EU, Norway or Iceland and do not pay social charges. Until recently, people resident elsewhere paid 33.33 percent, with no social charges, although this has recently been challenged in France by EU nationals living outside the EU, on the grounds of discrimination. Non-residents are exempt from French capital gains tax on most shareholdings, although certain business or property company shareholdings are taxable.

Capital Gains on Real Estate

The gain is calculated as the sale proceeds less acquisition costs. A deduction of 7.5 percent of the purchase price can also be made in lieu of actual acquisition costs, or the actual costs if documented, can be deducted, as well as the costs of disposal such as estate agency and legal fees, transfer tax and Notaire's fees.

Improvement or enhancement expenses can also be deducted provided they have not already been taken into account for income tax purposes, and they must not be for routine maintenance expenses such as redecoration or new carpets. The improvements must have been carried out by registered contractors. Work carried out by the individual themselves is not allowable. Alternatively, if the property has been held for at least five years, a deduction of 15 percent of the acquisition cost can be claimed in lieu of these expenses (even if no such work has actually been done to the property).

There is a general abatement of €1,000 per person (€2,000 for a married couple) against property gains, although this is being abolished from 1^st February 2012.

For French residents, a disposal of the main home is exempt, provided they are living in it at the date of sale. There is no "reinvestment relief" if they put the proceeds into a new main home. However, if they have not declared themselves to be a French resident, and not completed French tax returns, this relief will not be available. If they try to bring their position up to date shortly before disposing of assets, and if the first stages of sale have already taken place (such as signing a compromis de vente), they are unlikely to be able to establish a residence position in time.

In calculating the gain on property for both residents and non-residents, currently for each complete year of ownership after 5 years there is a 10 percent reduction in the taxable gain so that after 15 years there is no tax to pay. The 10 percent reductions also apply where the property is held in a "transparent" SCI company - so long as it has not become subject to corporation tax (and so is no longer "transparent") due to it having furnished lettings (or other trading) income.  However, this will be changing where a property is sold after 1^st February 2012 (i.e. where the Acte de Vente is signed after that date).  From 1^st February, the relief will apply as follows:

• Years 1 to 5 – no relief
• Years 6 to 17 – 2 percent relief per annum
• Years 18 to 24 – 4 percent relief per annum
• Years 25 to 30 – 8 percent relief per annum

Therefore, from that date, if the property being sold has been owned for 4 years, the full gain is taxable in France; if owned for 8 years, 6 percent of the gain is exempted.  If the property has been held for 10 years, 10 percent of the gain is exempt; after 20 years of ownership, 36 percent of the gain is exempt, and once held for 30 complete years, the gain is exempt in full.  For French residents, this exemption also applies to social charges.

In any other corporate holding, these reductions do not apply and business capital gains tax rules apply. For an owner who qualifies as a "professional furnished landlord" there is no tax after 5 years of letting a property so long as the turnover does not exceed €90,000 for the year of sale (time apportioned if sale brings the "business" to a close).

Exemptions

• If the proceeds of sale per property are no more than €15,000 per owner, the gain is exempt

• The main home is exempt, as can be the first and second sales of un-let French property by a non-resident French national or an EU resident, amongst others, if they were resident in France for at least two years at some time in the past

• If they receive a state pension or hold an invalidity card they are exempt from French capital gains tax on property providing that they did not have a wealth tax liability two years ago before the year of sale, or the taxable income two years before the year of sale was below a certain level

Capital Gains on Shares

Gains on shares are free of capital gains tax provided the shares have been held for more than eight years. The holding period is taken from 1 January 2006, so shares owned prior to that date need to be retained until 2014 before full exemption will apply.

There is a form of taper relief available for shares held for more than six years from 1 January 2006. The gain is reduced by one third after six years, and two thirds after seven years of ownership. These reductions do not apply to social charges, which remain payable on the full gain.

To qualify for the relief, the shares must be held in a company which carries on a commercial, industrial, artisan, liberal, agricultural or financial activity, and must have its headquarters in an EU or EEA country (but not Liechtenstein).

Otherwise, gains on shares are taxable in full, and also subject to social charges of 13.5 percent in the hands of French residents.

Losses can be carried forward 10 years and offset against future gains on the sale of shares and securities. Losses made before becoming French resident cannot be utilised after becoming French resident, just as gains made before becoming French resident are not taxable in France.

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:

• Furniture
• Household goods
• Cars
• Other moveable goods where the proceeds are less than or equal to €5,000
• Other moveable goods held for more than 12 years

Actual acquisition costs and improvement expenditure can be deducted. There is a general abatement of €1,000 per person.

The gain is reduced by ten percent for each complete year of ownership after the first two years and so reduces to nil after 12 years.

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 a 50 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 Tax

• Gains on shares are declared and tax is paid as part of the normal tax return cycle on Form 2074 annexed to the main tax return Form 2042

• Tax on other moveable goods is declared on Form 2048M and due within one month of sale

• Tax on real estate is declared on Form 2048 IMM and due within two months of the sale

Non-residents have to remit payment of gains on property at the time of sale. Tax due is calculated by the Notaire and withheld at the time of sale. The Notaire then remits payment of the tax, declared on Form 2048 IMM, within two months from the notarised deed of sale. Where the gain is exempt there is no need to complete the form.

However, non-residents also need to appoint a fiscal representative, who indemnifies the French tax authorities that the correct tax has been paid on the gain. The SARF (Société Accréditée de Représentaion Fiscale) 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 one percent of the sale price, but there is no obligation 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. It can take several months for the tax authorities to accredit a French tax resident as a tax representative of a non-resident.

Usually, once the tax has been retained from the sale proceeds, there is no further requirement for any tax retention; however, in rare cases if there is some reason to doubt the validity of the declared capital gains tax position, or if it is otherwise unclear the fiscal representative may continue to withhold up to the same amount of tax again for up to 4 years pending finalisation of the position.

A person who is not resident in France, may also be tax due in their home country on the disposal, subject to any Double Taxation Relief.

Further Information

The French tax authorities (Direction Générale des Impôts) have published a 74 page document in English which explains all French taxation due by residents of France. This includes details on income taxes (corporation tax, social charges and the tax on income), property tax (registration taxes, wealth tax and more), direct taxes (business tax and residence tax - taxe professionelle and taxe d'habitation) and taxes on expenditure such as value added tax (TVA).

• For a document about The French Tax System: Click here (PDF)