Capital gains taxes on French property explained

Capital gains tax in France is called ‘impôt sur les plus values’ and is payable on the sale of land or buildings, on shares, and certain other personal property. It is determined by the difference between the sale price and the purchase price.

Please find the latest update about CGT on French property (Sept 2011) click here.

After the purchase of a French house, taxes become digressive as the years go by. Normally, up to 15 years after the purchase of your French property there will be no more taxation. In all cases, the French tax is applied at the time of the sale in the offices of the notaire, and will be deducted from the sale proceeds before the cheque is handed over. According to the latest figures in 2011, the applicable French tax rate is 31.3%. It seems quite high but this tax rate is regressive. This sum comprises capital gains tax at the rate of 19%, plus 12.3% of social charges.

If you’re not classed as a resident in France but you are in the EU, then the applicable tax rate is 19%, as no social charges are payable. It is therefore far more profitable than if you are resident in France. Furthermore, the tax rate lowers to only 10% five years after the purchase as you can see on the graph below:

If you’re interested in making as many exemptions as possible, the most important exemption from capital gains tax in France regards the family home. For the tax to become effective, the property must be occupied by you on a habitual basis up to the time of the sale, although you don’t need to actually occupy it at the time of sale. This concession may be available for up to a year, but you will need proper reasons if so.

How to avoid paying this tax?

You are exempt of paying capital gain tax if it was your main residence. In order to benefit from this exemption, you are not allowed to let out the property during the sale period, or to leave family members in occupation. Fortunately for you, the French law does not state how long you need to have occupied the property for it to be considered as your main house. Generally, it is accepted that eight months is a minimum period for it to be considered as your main house (in order to escape the attention of the tax authorities). However, there are concessions, such as force majeure (natural disasters for instance), job relocation, death of a spouse…

Likewise, the tax authorities will normally expect you to have made an income tax declaration and you will need to be able to produce a taxe d’habitation (housing tax) in your name, in order for it be considered to have been your main residence. Should you live in two main properties all year round, then you will similarly need to supply a copy of the taxe d’habitation in order to prove your residence exists. It may well be preferable to have previously notified the tax office as to which of the two properties you consider your main residence.