Capital gains tax on the sale of your French property

Know How

When you come to the point of selling your secondary home in France, the French tax authorities have a surprise in store for you: the taxe sur la plus value, This is the capital gains tax that you will have to pay if you sell a secondary residence in France with a profit. The profit you make is the difference between the initial purchase price and the actual selling price. In order to compensate for costs incurred during the ownership, certain expenses can be added to the purchase price like the purchase costs and expenses made for improvement of the property (NB general maintenance and upkeep fall outside this scope!) You may also deduct certain costs from the sales price, such as brokerage costs.

The current tax rate is set at 19% for residents of an EU country.

Supplementary tax

In addition to the basic rates of capital gains tax, since 1st January 2013 a supplementary rate of tax is also payable on gains over €50,000. For a profit up to € 100,000, the additional levy is 2%. Over that  amount, the rate gradually increases to a maximum of 6% for a profit exceeding € 250,000.

Social security contributions

In addition to income tax, France also deducts 17.2% of social security contributions from the sales profit. Since 2012, France has also imposed this tax on non-residents with a second home in France. However, on 26 February 2015, the European Court of Justice ruled that France may not levy social contributions on income of persons subject to the social security system in another EU Member State. France now reimburses the social security contributions unjustly paid before 2016. But in the meantime, it has amended its legislation in such a way that from 2016 it can still levy social contributions from non-residents. According to France, it no longer acts in violation of EU law.

Term

In case you owned your property for more than 5 years,  tapered relief against the capital gains tax  is granted over a period of 22 years as follows:

  • No allowance for the first 5 years of ownership.
  • Between 6 and 21 years of ownership: 6% allowance per year.
  • For the final 22nd year of ownership: 4% allowance.

 

A similar tapered relief is granted for the social security contributions, but over a longer period of 30 years, commencing from the 6th year of ownership, as follows:

  • No allowance for the first 5 years of ownership.
  • Between 6 and 21 years of ownership: 1.65% per year.
  • For the 22nd year of ownership: 1.60% in this single year.
  • Between the 23rd year to 30th year of ownership: 9% per year.

 

Fiscal representative

Until 2015, non-residents in France were required to appoint a fiscal representative (représentant fiscal) who was responsible for a correct tax settlement of the sale. Under pressure from ‘Europe’, France abolished that obligation for all sales transactions that take place from 1 January 2015. This is a financial windfall for sellers: the fee to be paid for the services of the tax representative was often around  1% of the selling price of the property!

 

In case the sale of your property will be subjected to capital gains it is worthwhile to discuss beforehand with a fiscal expert like e.g. Maitre Albert Mulder (website here) who will be able to optimise the process and maximise your proceeds.

Personal advice?

Do you need personal advices when you are looking for a property? We love to help you out