Capital Gains Tax
September 5, 2007
There are some changes afoot in the tax and social security system for people living in France, things like health charges for early retired new residents and wealth tax. I will write up some notes and references to good sources.
One recurring question is about Capital Gains Tax on selling a second home - as far as I am aware there are no recent (this year) changes and it simply depends on how long you have owned the property, where your main residence is and if you have had allowable works done by an approved registered French builder.
The Notaire dealing with the sale is responsible for decisions on what is due and collecting the tax when you sell.
Her are a couple of recent emails I have had.
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Hi!
We are a US couple who has owned a home in the Ardeche for 6 years. We are interested in selling it and wanted to find out what type of capital gains taxes, and other fees would be involved in this transaction. Is it true that there is a 10% discount off capital gains for every year after 5 yrs that you own the house? Do you have any idea where we can get more information on fees involved and other important information on selling a house in France as an American. Do we need to claim any of this income in the US?
Thanks in advance for your help! We greatly appreciate it.
All the best,
Susie
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Hello Susie,
As a US resident you will pay 33 percent capital gains tax on the difference of the purchase price (including agents and legal fees) and the selling price.
This reduces by 10 percent a year after five full years of ownership, so after the 15th year of ownership (usually in the 16th year) there is no tax due.
The tax is collected by the Notaire handling the sale.
There are no other costs you have in selling, the taxes and Notary fees are paid by the purchaser and the realtors will add their commission to your selling price.
If you have had significant alterations done by a French registered builder (extensions or other added work) the cost of the valid French invoice can be used to reduce tax - but repairs (even major repairs), decoration or work you do yourself cannot be offset.
After French taxes, any profit you make on the sale will need to be declared to the IRS in the USA. I advise professional advice regarding your position in the USA.
Hope this helps - do let me know how you get on
Best wishes
Tony
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NB
The tax due for a European Community resident is 16 percent
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Tony
My wife and I have a ski apartment in Chamonix worth £200,000, which we bought in 1991 for £76,000. We would like to give it to our four children. We have seen a French Notaire who says we can use “Usufruct” to do this without paying any French tax. Charges would be £4,000,and it would be no business of the British tax authorities. Our accountant says otherwise. She says we would be clobbered for about £40,000 CGT,less indexation and personal allowances. Can you advise us where to go from here?
David
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Hello David,
The French Notaire is correct as you will have no CGT to pay.
Capital Gains Tax (TVA in France) on a maison secondaire for a European resident is 16 percent. However this reduces by 10 percent per annum after the fifth year so after 15 full years there is no CGT to pay on your property as you bought in in 1991. The maximum CGT you would have been under 20000 pounds anyway - your accountant is well out of order.
To use a Usefruct and to transfer this to your children while you have the full use and benefit may be a good idea as this will reduce your capital for wealth tax considerations.
Do let me know how you get on
Sincerely
Tony
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Comment by Lynne Snee
Hello Tony,
My husband and I have just put our ‘home’ in the Aude up for sale. We have owned the house for 4 years and it is our only property. We are British citizens but have been resident for the past 10 years in a British Overseas Territory. Are we right in thinking that we will be liable to pay CGT at 33.33%? If so, are there any means of mitigating this?
Many thanks,
Lynne
Comment by Tony
Hello Lynne,
Although your property it your only property I do not believe you can claim it as your principal residence as you live abroad.
Full capital gains tax is due for the sale of a secondary property if sold in the first five years.
Tax is due on the difference between the buying and selling price, the only allowances are for the legal costs, agent fees and any major alterations against an invoice by a registered French builder.
If you are a resident in the common market then tax is 16 percent other wise it is 33 percent - I asume the country you are resident in is not part of the European community, so tax will be due at 33 percent.
The tax is collected by the Notaire handling the sale - the sale must be done through a Notaire in France.
Give me more details, I jhabve clients looking to buy property in Aude
Comment by Alexander
Dear Tony,
I’m a little confused. Let’s say I purchased for 150000 Euros and sell for 180000 Euros
Suppose the profit 30000 Euros. Real estate takes 5% from the selling price i.e. 9000 Euros. So the profit 23000 Euros. My question: from what figures I have to pay 33% Capital Gains Tax. Many thanks
Alexander
Comment by John
The French Notaire is correct as you will have no CGT to pay.
Sure they won’t have any liability in France, but won’t the UK authorities be notified and want their share?
Comment by Tony
Alexander asked about what figures - basically if you sell within 5 years you pay on the Capital Gain - the difference beween buying and selling, less any allowable costs - the Notaire will calculate this and collect the tax from the proceeds.
The allowable costs can be bills for substatial alterations done by a registered builder (not repairs or decoration - any selling costs such as termite/lead/asbestos reports - the Notaire will tell you, if you ask, what allowances are permitted
Comment by Tom Burns
With regard to the couple in Chamonix I would like to know who their accountant is.
If it’s the same one I’m using then I think we should pool resources and information and take them to court for incompetence.
Tom
Comment by Fiona
I am really confused!
I currently live in England but own a holiday home in France. Having just got a job to start on 1st January in France, my holiday home will become my principal residence. My home in England is currently up for sale. If I do not sell it before I start my job on 1st January, will I be liable to pay capital gains tax on it in France? If so , how much?
Thanks!
Comment by Tony
Fiona,
You should get competant paid professional advice from an advisor who is qualified and (most important this) insured to give this advice for your own particular circumstances - my personal understanding is that you will not be liable for capital gains tax in France when you sell your home in the UK
Comment by Tom Burns
Tony
I would love to get “competant paid professional advice from an advisor who is qualified and (most important this) insured to give this advice for your own particular circumstances” but unfortunately I haven’t met anyone who comes close to this description (and I have shelled out plenty). I haven’t given up- any idea where I could find this service- I certainly need it!
Tom
Comment by Tony
Hello Tom,
I have had a lot of correspondence with a qualified specialist Stephen Smith - I recommend you get in touch with him, he has sent me his terms and conditions which I attach to this mail. I am copying this mail to Stephen.
Please let me know how you get on
Sincerely
Tony
Comment by yvette
We live in Canada - considering moving to France - would like information on cost of property taxes, capital gain tax if the home will be your principal residence and you decide to sell, also how much tax would our kids pay to inherate the property.
We would be retiring in France.
Health insurance in France - is it expernsive for foreiners?
Comment by Tony
Hello Yvette
If your home is your principal home there is no capital gains tax to pay if you sell.
Inheritance tax on the home would be based on a valuation after your death of over 900,000 euro.
There are structures you could apply when you purchase, such as a “usefruit” or “tontine” which may help your Inheritance tax, or you could buy in the name of a special company, a SCI.
There are other articles I have written about these and you can see them if you search the archives of the newsletters at
http://www.nizas.com/newsletters/archives.html - or write to me.
Hope this helps
best wishes
Tony
Comment by Tony
I did not answer the health insurance question - As a resident, if you are over retirement age then you are entitled to health care, but you are advised to have a supplimentary insurance to cover 100 percent of the costs of any hospitaliation or treatment - this “top-up” insurance is not expensive, my mother who is 85 and who is retired in France pays 115 euro a month for 100 percent cover. She has had two hip replacements and other servies in the last two years, all paid 100 percent.
Comment by dorte clifford
I have heard that if a non-eu resident have at one time lived and paid taxes in France for at least two years, then there is a one-time exemption for selling a second residence without having to pay any capital gains tax. Could you expand on this and explain if there are other criteria that have to be met.
Comment by Tony
Hello Clifford,
Your tax liability depends on your status at the time of selling the house. If the house if no longer your “maison principal” - that is it is no longer your main residence (that you live in France more than any other place or more than 183 days a year) and that you declare taxes in France, then it is a “maison secondaire” and liable for Capital Gains tax.
If you are currently a non eu resident, then the tax base is 33 percent which reduced by ten percent a year after the fifth year (therefore it is zero after fifteen full years) - this is a tax on the difference between the buying cost and selling price - you can claim for major alterations but not repairs, if you have a certified invoiced from a French builder.
I have not heard of the exemption you refer to, nor have Notaire I have asked, but if you have more information I would be interested to learn this.
Best wishes
Tony
Comment by Brian Lennon
Dear Sirs
My wife and I bought a Longere seven years ago for approx 20,000.euros which required complete renovation. We proceeded to hire French registered builders and put in new walls,new floors,septic tank new roof and complete grounds. The total cost for the renovation is approx 200,000 Euros and we are now intending to sell at about 250,000 Euros. Can we offset the renovation costs against any Capital Gains Tax if we are liable for this tax. We are retired and live in the U.K. Many Thanks
Comment by Kevin
Dear Tony,
I own a property in Paris which I have bought five years back for Eur 190,000, I hold a European passport but currently do not reside in Europe. The property is now worth Eur 350,000 and I am considering selling it in 2009 or 2010 (making benefit of the 10% reduction on capital gains after year 5.) If I purchase a new apartment in France from the capital gain (re-investment), would I still need to pay the full 33.33% capital gain tax, please kindly advise.
Cheers,
Kevin
Comment by tony
Hi Kevin,
Simple answer - no - you must pay the tax on each gain.
There are some allowances, but only way you could “re-invest” would be if you had a registered French property development company and this was you normal trading business prcatice.
You can calculate the tax due with tools I have on my site at
http://www.nizas.com/calculators/
Hope this helps
Best wishes
Tony