For British expatriates living in France or moving between the UK and France, capital gains tax can have a significant impact on property, investment and business sales. Understanding the CGT rules in both countries can help you avoid costly mistakes.
When we buy assets such as property and shares, the aim is for them to rise in value and generate a profit when sold. The challenge for expatriates is that the tax consequences are not always straightforward, particularly when assets, residency and tax liabilities span both France and the UK. Understanding the key differences between the two systems can help you avoid unexpected liabilities and identify valuable planning opportunities.
French capital gains tax on property
Gains made on the sale of real estate are taxed at 19%, plus surcharges of between 2% and 6% for amounts exceeding €50,000. Social charges on property gains are 17.2%, reduced to 7.5% if you have Form S1. The top combined rate is 42.2%, or 32.5% with an S1.
France does not have a capital gains tax allowance but does offer taper relief based on length of ownership. The gain is gradually reduced for tax purposes from the sixth year of ownership to the point where it becomes fully exempt from tax after 22 years. After 30 years it’s also exempt from social charges.
France main home and other exemptions
The main home is exempt from capital gains tax in France. It is an ‘all or nothing’ relief, with the focus on where you live at the time of sale. Put simply, if the property is your principal residence at the time of sale, you don’t pay capital gains tax.
If you sell your home after moving out, timing is crucial. There is a grace period of 12 months, possibly up to 18, during which you can still apply for the main home relief. But if you exceed this period or rent the property out after vacating it, the full gain becomes liable to tax.
Property gains also may be exempt from CGT if you did not own a main home in the previous four years and invest the proceeds into a main home, or if you receive a state pension and your wealth and income are below a certain level.
Selling UK property as a French resident
If you sell your UK property after moving to France, you may be assessed for tax in both countries. UK tax is limited to gains made from 2015 (or 2019 for commercial property). France generally gives credit for any UK tax paid, so you don’t pay tax twice though you do pay the higher amount.
UK CGT rates are now 18% for basic-rate taxpayers and 24% for higher-rate, on both property and capital investments, and the annual allowance is just £3,000.
If the property was previously your main home, you have a nine-month window where may still qualify for full UK Private Residence Relief (PRR). After that, UK CGT may apply. You can still claim PRR for the period the property was your main residence, but the longer you wait to sell, the greater your exposure to UK tax.
The difference between these UK rules and France’s taper relief system can create a dilemma. Delaying a sale may reduce French tax but increase your UK liability. Careful calculations can help identify the ownership period that produces the lowest overall tax burden.
Selling French property when returning to the UK
The gain will always be taxable in France because the property is located there, even if you sell it after resuming UK residence. If you are selling your main home, you have until the end of the calendar year following your year of departure to sell and benefit from the main home exemption, provided you don’t rent it out.
As a UK tax resident, you must also declare the gain to HMRC, but relief is normally available for French tax paid. UK Private Residence Relief can apply to an overseas main home, subject to the normal qualifying conditions. Additionally, if you return to the UK as a non-long-term resident (you’ve lived abroad for 10 years), you could potentially be taxed under the UK’s ‘FIG regime’ – your foreign income and gains will be tax free for your first four years back.
With French and UK tax rules applying simultaneously, the best time to sell is not always obvious. The interaction between French and UK reliefs can significantly affect the overall tax outcome, making careful cross-border planning essential.
French capital gains tax on shares and other capital investments
Capital gains made on the sale of shares and other securities are taxed as investment income in France, at a flat rate of 31.4%. This includes both tax and social charges, so if you have Form S1 the rate falls to 20.3%.
If you hold investments directly and regularly switch between funds, shares or other assets, each disposal must be declared and will trigger tax on any gains at 20.3% or 31.4%.
But France offers a highly tax-efficient investment structure: the widely used assurance-vie, which effectively nullifies the effect of CGT over the long term. If you move your investments into an appropriate arrangement, income and gains can accumulate tax free within the policy, even as investments are bought and sold. When you make withdrawals, only the growth element is taxable.
Assurance-vie is also a powerful way to reduce income and succession taxes, often generating significant tax savings. Your tax compliance becomes much easier too, regardless of the complexity of the underlying portfolio. Do your homework before selecting a policy to confirm it suits your circumstances and objectives.
Selling investments when relocating
Unlike property, which is assessed for tax in both countries, if you sell UK shares or other securities as a French resident, or vice versa, the gains are generally taxed in the country where you are tax resident, not where the investment is located.
Whether you are moving to France or returning to the UK, consider how the timing of your move and any asset disposals could affect your tax position. If you are selling a UK business, seek cross-border tax mitigation advice as early as possible. Those with greater flexibility could even consider spending a few years in a more tax-friendly jurisdiction between leaving the UK and arriving in France.
France’s exit tax
France levies an exit tax – essentially deferred capital gains tax – when an individual who has been resident in France for six of the last ten years leaves the country, and their total shareholdings are valued at over €800,000 or they own more than 50% of a company. The 31.4% tax arises the day before you depart and is levied on your unrealised gains.
This tax is deferred (until the shares are sold, reimbursed etc) if you move to an EU/EEA state, or third country with a tax information agreement if moving for professional reasons.
If exit tax may affect you, take advice early. Restructuring your shareholdings could potentially mitigate or avoid this tax.
Speak to a UK-France tax specialist
The interaction between the UK and French tax systems can create valuable planning opportunities, but it can also lead to unexpected tax liabilities if decisions are made without specialist advice. Blevins Franks’ cross-border tax and wealth management advisers explain your options, assess the timing of asset sales and develop a strategy tailored to your circumstances. To discuss your situation, complete our contact form to arrange to speak with an adviser.
