French capital gains tax on property sales

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by Muriel Brault:   Notaire Dimplomée:  Cabinet Roche & CIE:

     www.cabinet-roche.com

Note: This article discusses capital gains taxes levied on property owned in the names of individuals (not corporate entities).

Capital gains tax in France is called impôt sur les plus values and is a tax payable on the sale of land or buildings. The capital gain is the difference between the selling price and the purchase price (which is deductible).

How can French capital gains taxes be mitigated?

Acquisition costs can be deducted at their actual cost or for a fixed value representing 7,5% of the acquisition price, also known as closing costs.

The cost of work carried out on the property can be deducted as well, by producing all of the relative invoices of expenses related to construction, reconstruction, improvement or extension work. Otherwise, if you have owned the property for over 5 years you are allowed to deduct a fixed 15% from the purchase price without providing invoices or receipts. (This lump sum does not apply to the value of the land, only the buildings).

There are allowances for holding period too.  Capital gains taxes are reduced the longer one has owned the property.  The calculation of the holding period allowance has changed several times in the past few years. The most recent amendment stipulates two scales:

-the first concerns the income tax (19%): exemption after 22 years of holding

-the second concerns social charges (15.5%): exemption after 30 years of holding

Consequently, the capital gain is completely exempt from tax and social charges after 30 years of holding. Application of the exemption for holding period over time is illustrated in the table below:

      Holding period

Allowance rate applicable each year of holding

Basis for income tax Basis for social charges
Less than 6 years 0 % 0 %
From the 6th to the 21st  year 6 % 1,65 %
22nd year  4 % 1,60 %
Beyond the 22nd  year 9 %

Calculation and payment of capital gains tax

As of January 1, 2015 there is only one tax rate of 19% for all individuals regardless of their place of residence.

The third amended finance Law for 2012 stipulates an additional tax on capital gains realized by individuals. It is payable upon sale, and due on taxable capital gains in excess of € 50,000. This surtax represents between 2% and 6%.

Finally, non-residents have been subject to social charges (15.5%) since 2012. There is substantial legal controversy over the social charges on non-residents, with pressure to exempt non-residents from social charges on capital gains. The calculations are carried out in accordance with Form 2048. The notaire will calculate the tax and social charges payable and deduct this from the sale proceeds before you receive them. 

Example: A property bought 1,900,000 Euros by a non-resident, sold for 3,000,000 Euros after 14 years.

 

CAPITAL GAIN TAX

Sale price

3,000,000

Purchase price

– 1,900,000

Purchase expenses (7,5%) and improvements (15%)

– (142,500 + 285,000) = 427,500

Gross capital gain

= 672.500

 

Capital gains tax (19%)

Social security contributions (15,5%)

Allowance for holding time

9 years x 6% = 54 % → 363,150

9 years x 1.65% =14,85 % → 99,866

Net capital gain following the allowance

309,350  €

572,634 €

Net capital gain

= 309,350

= 572,634

Tax rate

x 19 %

x 15.5 %

Tax

= 58,776

= 88,758

Surcharge

(% of the net capital gain)

+ 18,561

(6%)

Total amount to be paid

166,095

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