Maisons Cordiales
(French Home Owners Association)
INFORMATION SHEET NUMBER 22
PURCHASING A PROPERTY IN FRANCE.
INFORMATION SHEET NUMBER 22
The following information has been supplied by David Crawford - November
2003 (for further information please contact David)
FRENCH CAPITAL GAINS TAX FOR INDIVIDUALS ON REAL PROPERTY
SOME IMPORTANT CHANGES ARE PROPOSED
1. The Present Regime
a. Basically, as in England, this tax is charged on the difference between what
you pay for a property, plus the cost of acquiring it such as notaire’s fees and estate
agent’s commission, and the net sale proceeds. If you are not resident, and therefore
taxable in France, the notaire acting for you in the sale will calculate on form 2049
the tax payable at 33.3%, deduct it from the sale proceeds and account to the revenue
with it. French residents have to include the gain in their income tax return at the end
of the year and the tax is payable in the following year.
b. There are certain exemptions, the principal ones being the following:
i) Principal private residence is exempt as in England (at present);
ii) If you do not own your principal private residence, you can claim CGT
exemption on the first sale of a second home, rented or just an empty property.
ii) Other exemptions include agricultural or forestry land, storm damage
compensation, property in the DOMs, people who own less than € 61,000,
retired people who receive a state pension and do not pay income tax, sales for
less than € 4,600.
c. There are also certain allowances as follows:
i) ACQUISITION, IMPROVEMENT etc. and DISPOSAL COSTS: You can
add to the cost of acquisition (10% is presently allowed if you cannot prove the
correct figure), the cost of building or improvements, renovation,
reconstruction, repair and enlargement, provided these have not already been
allowed against income,. If you have not kept receipts, you will be allowed a
nominal 15%, or you can call in an expert to put a figure on the cost of the
work, (or if you have done it yourself and can prove the cost of the materials
you have used you will be allowed three times this figure), the cost of
connection to mains services, the cost of tax advice on the calculation and,
subject to conditions, the interest paid on certain
qualifying loans to purchase a second home taken out before 1998
ii) LONG-TERM GAINS: If you have owned the property for more than two
years the gain is called long term and is reduced by 5% per annum for each complete
year held before arriving at the taxable figure.
iii) TWENTY-TWO YEAR OWNERSHIP: Consequently property held for
more than 22 years is exempt.
iv) INDEXATION: The acquisition cost and expenses are multiplied by a
factor to take account of the loss in value of money. For example, if you have owned
the property since 1989 this factor is 1.25. Therefore a property for which you paid
the equivalent of €100,000 will be deemed acquired for €125,000 if bought in 1989.
v) LOSSES NOT ALLOWABLE: Only very rarely can you set losses against
gains even if both made in the same tax year as you can in England.
vi) ANNUAL ALLOWANCE: There is an annual allowance of €915.
vii) SECOND HOME ALLOWANCE: There is an allowance for the sale of
your first “second” home of € 4,600 for an individual, €6,100 for a couple and
€1,525 per child which they may have living with them
2. PROPOSED budget reforms to take effect from 1 January 2004 and
affecting disposals made on or after that date:
i) The rate of tax is to be 26%, (16% tax plus 10% “social charges”);
ii) The notaire will be required to make the calculations in almost all cases,
collect the tax and account to the revenue on behalf of the vendor;
iii) The principal private residence relief is now only given when the vendor
has resided in it from the date of his acquisition. From 1.1.2004 it will be
available if it is that residence at the date of disposal;
iv) Disposals for less than €15,000 will be exempt;
v) The other exemptions will be abolished, eg the sale of a property where the
vendor does not own his main residence.
vi) Long term gains are to be redefined as those where the vendor has held the
property for at least five years.
vii) The cost of acquisition will be deemed 7.5% (instead of the present 10%)
of the purchase price if you are unable to prove the actual figure.
viii) The cost of improvement, etc., works will still be allowed EXCEPT where
the vendor has carried them out himself. The 15% allowed where you are not
able to provide receipts will be confined to long term gains only.
ix) The taxable gain will be reduced by 10% per annum after the end of year
five and therefore no CGT will be payable after 15 years of ownership instead
of the present 22.
x) The annual exemption of €910 per taxpayer per annum is to be increased to
€ 1,000 per disposal
xi) Capital gains of companies chargeable to corporation tax will only be
subject to the above CGT regime to the extent that their gains are not so
charged when the shares in them are disposed of if they are mainly property
owning companies (eg SCI’s) It may be in the interests of such shareholders
where their companies are not subject to corporation tax now to dispose of
their shares before the end of the year. Also if such shares are sold it will be the
shareholders on the sale date who will be taxable after 2003 and not those who
own shares in the company at the date of its winding up, although it cold be the
latter who have the benefit of the proceeds of sale.
xii) French people living abroad who are registered for and pay income tax in
France can have a residence in France exempt if they occupy it for one year.
This exemption is to be extended to nationals of all member states of the EU
and the one year’s residence qualification is to. This is limited to one residence
per taxpayer and is conditional on his being fiscally domiciled in France for at
least two years immediately before the disposal.
N. B.
i) Gifts in France do not give rise to a charge to capital gains tax, unlike in
England. However, they may be chargeable to their gift tax;
ii) Changes are proposed in their gift tax allowances from 1 January, 2004.
Gifts made by those aged under 65 years were reduced by 50% in value before
calculating the tax. Those made by donors aged between 65 and 74 were
reduced by 30% in value. These reductions are to go down to 35% and 10%
respectively. IF YOU ARE IN THE PROCESS OF SELLING A PROPERTY
WHICH YOU HAVE OWNED FOR MORE THAN FIFTEEN BUT LESS
THAN TEWNTY-TWO YEARS YOU WILL BE WELL ADVISED TO
WAIT UNTIL AFTER 1 JANUARY 2004. HOWEVER, IF IT IS A
PROPERTY WHICH IS WHOLLY OR PARTLY EXEMPT NOW BUT
WILL CEASE TO BE SO AFTER
THAT DATE THE REVERSE IS THE CASE.
IF YOU ARE CONTEMPLATING MAKING A GIFT TO A RELATIVE OR
FRIEND WHICH MAY GIVE RISE TO A CHARGE TO GIFT TAX AND IF
YOU MAY BE AFFECTED BY THE ABOVE CHANGES YOU SHOULD
SEEK PROFESSIONAL ADVICE URGENTLY TO ENSURE MATTERS
ARE COMPLETED PROPERLY AND ON TIME.
iii) The above is only a general statement of the present law and
proposed changes. No legal liability can be accepted for any action
taken without reference to the author. You are very strongly urged to
take professional advice before proceeding on the basis of anything
stated in this article lest there is some aspect of the transaction to
which these notes do not apply. It is in particular stressed that unless
otherwise stated they do not generally apply to disposals by
companies nor to moveable property or chattels.
David Crawford (MRB NOV.03)
In January 2004 the French government once again “moved the goal posts” .
Thanks to David for the following:It is appreciated that the explanation of the law prior to 2004 is considered by
some to be redundant. In fact all of is if you do not intend to sell. However,
others will require to know what the “old” law was in order to understand
better these changes.
Others will have sold prior to 2004 and still be in the process of working out
the tax and will need to know what the law was as this will govern their CGT
calculations.
More cynically still perhaps there will be others who have paid or will pay
more tax than they would have done had they been notified in time of these
charges and who may in consequence have a claim against their professional
advisers forfailing to keep them fully informed.
Finally, these notes were prepared in November 2003 to draw the member’s
attention to these impending changes so that they no ill advised disposals.
If none of these reasons applies to you please feel free to ignore the part which
deals with the pre-2004 position.
IF IN DOUBT I SUGGEST YOU CONTACT DAVID FOR HIS ADVICE
Information Sheet No.22 page 5 of 7
Owners Association)