Tuesday, November 24, 2009

Non-resident selling French property

If you are not fiscally resident in France, selling your French property - such as a second home, holiday home, rental investment - will in certain circumstances attract capital gains tax on the profits of the sale. Profit is defined as the difference between the price you originally paid for the property and the price at which you sell it, subject to certain abatements, such as the costs of acquisition (agents commission, notaire's costs, architect's fees etc) and certain building improvement works certified by registered artisans (with an automatic allowance of 15% if the property has been owned for more than 5 years).

If the property has been owned for more than 15 years (even as a second home) there is no CGT to pay. During the first 5 years of ownership, CGT is paid in full on resale, but is reduced by 10% per year in years 6 to 15 of ownership, finaly reducing to zero after 15 years. A property that is considered to be your 'main and principal home' is not subject to CGT on re-sale, provided the Notaire and the French tax authorities are satisfied as to your status as a French resident. The rules are complex but are based on the concept of your principal 'centre of interest' - the place where you and family live, possibly work, for most of the time.

A further complication for non-residents attracting CGT on the sale of their French property is the requirement to complete a form 2090 and appoint a French accredited fiscal representative in France, who is responsible for ensuring that the taxes are paid. This can be a private individual or one of a group of specially accredited companies that will undertake this task for a fee.

The rules have been recently amended, allowing a dispensation for low value properties that are individually owned, and in some cases it is possible for the non-resident vendor or the Notaire handling the transaction to negotiate an arrangement with the French tax authorities, whereby CGT and any other taxes are calculated and paid over promptly on completion of the sale. There are different rules for properties owned by an SCI or a company, and professional advice should be sought.

The rate of CGT is currently fixed at 16% plus in some cases an obligatory social charge of 10%, and applies to French and non-French owners selling a property that is not designated as their 'résidence principale' and which has been owned for less than 15 years. The French Notaire, in his role as tax collector, is responsible for calculating CGT payable and agreeing his calculations with the French authorities, before transfering the remaining balance of the sale proceeds to the vendor.