Tuesday, July 28, 2009

French capital gains tax

British owners of a second home in France - that is, one that is not considered your main and principal residence - will find they are subject to French capital gains tax on the profit, if they sell the property within 15 years of its original purchase. Profit is the difference between the sale price and the original purchase price, less any applicable allowances, such as the cost of purchase (ie the notaire's fees and taxes you paid when buying) and certain building improvements you may have carried out.

The rate of CGT is currently 16% and if you sell the property within the first 5 years this is charged on 100% of the profit. During the subsequent 10 years, if you keep the property, the 'profit' is reduced each year by 10% - so that after 15 years it is reduced (for tax purposes) to Nil. As an example, in year 6, you would paid 16%on 90% of the profit, and in year 7 on 80% and so on, until year 15 when you would pay CGT of 16% on just 10% of the profit - less the alllowances noted above.

If your residence in France is considered to be your main and principal home, and you are within the French tax system as a resident, then the sale of your property does not normally attract CGT.

Before selling your home - either a principal or secondary residence - it is a good idea to consult a notaire to clarify your precise tax and residency position in France, and obtain his estimate of what taxes - if any - might apply. In any event it will be the decision of the notaire handling the sale that will primarily determine the amount of tax payable (or not) on the sale.