Capital gains tax in France should be a key consideration when buying an asset that is expected to increase in value. Understand how the gains you make will be taxed if and when you come to sell your investments.
Most countries apply a capital gains tax of sorts, and France is no exception. As the name perfectly describes, capital gains tax (or CGT) is the tax we pay when we dispose of an asset and a monetary gain is realised. But not all gains are taxed the same way.
Movable/intangible assets like shares and bonds are taxed very differently from immovable/tangible assets like property.
How are investments like shares and bonds taxed?
In this first budget, President Macron introduced a new, fixed-rate tax system for investment income and this includes gains.
Gains made on securities like shares, corporate bonds, loan stocks, etc are not liable to ‘capital gains tax’ as such, but are taxed as investment income (together with bank interest and dividends).
The fixed rate is 30%, which includes both the tax element (12.8%) and social charges (17.2%).
For higher earners, this was a big improvement on the previous system.
Lower earners can opt for investment income to be taxed at the scale rates of income tax. In this case, 50% of the gain is tax-free after two years, rising to 65% for shares held over eight years. Social charges will additionally apply at 17.2%.
If you are covered under the health system of another EU/EEA country, or are a UK national holding Form S1, social charges will be reduced to 7.5% whether your investment income and gains are taxed at the scale rate or the flat tax.
Will I pay capital gains tax when selling my home?
Your principal home is exempt from capital gains tax in France.
This is regardless of what you do with the proceeds, but it must be your main home at the time of sale. There is no ‘time apportionment’ for periods of occupation; if you do not sell it within one year of moving out, you’ll pay tax on the gain since the acquisition. But on the other side of the coin, the property will be exempt even if you have not lived in it most of the time you owned it, provided it was your home at the end.
What about other properties?
The standard capital gains tax rate when selling property is 19%. However, progressive surcharges from 2% to 6% are added to gains over €50,000, calculated after the application of the holding deduction detailed below.
There can be other exemptions besides the main home one though. If you receive a state pension and your wealth and income are below a certain level you may escape capital gains tax on property. Likewise, if you invest the proceeds into the main home and did not own one in the previous four years.
In any case, a taper relief system reduces capital gains tax the longer you have held the property, starting from the sixth year of ownership. After 22 years, no capital gains tax is due at all.
Do you pay social charges on property gains?
Gains made on the sale of property are additionally liable to social charges at 17.2% (but will be lowered if the person selling the French real estate is a UK tax resident or has a Form S1).
Again, a taper relief system reduces the charges by 1.65% from year six and by 9% from year 23, with total exemption after 30 years.
Since most of the relief falls in the last seven years, many people have greater social charge liabilities than capital gains tax liabilities. This is especially pertinent for UK tax residents selling French property, as you can offset the French tax element against your UK capital gains tax liability but can’t offset social charges.
Learn more about buying and selling property in France through our FAQ article.
What about moveable, tangible items like jewellery and art?
Works of art, collectibles, antiques, jewellery, yachts, vintage wines, racehorses etc are generally liable for capital gains tax, if the sale is above €5,000. Precious metals are always liable.
The tax will amount to 11% of the value of the assets for precious metals and 6% for jewellery, art, antiques, and collectibles, plus 0.5% for social charges.
You can also elect to be taxed under the standard CGT tax regime instead, where gains are taxed at 19% (plus social charges) but with a taper relief system so it reduces to nil after 22 years.
Cars, household goods and furniture are not subject to capital gains tax (provided they’re not antiques/art).
Is there anything I should do before moving to France?
It is important to review and adjust your financial affairs for your life in France – if you can do this before you move, all the better.
The UK provides an annual capital gains tax allowance, but in France the full gain is liable to tax – that’s the gain since you acquired the asset. So you will have missed the opportunity to use the UK allowance and potentially lower tax rates. Likewise, you may be holding assets in structures that are tax-free in the UK, but not in France.
When it comes to property, compare what your CGT liability will be if you sell as a UK resident to what you’d pay in France if you wait till you are resident here to dispose of it.
In summary, seek cross-border professional advice before you move.
What about leaving France?
Be aware that France applies an ‘exit tax’, which is essentially capital gains tax even though you’re not selling the asset.
This tax is levied 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% share of a company. The 30% tax arises the day before the individual departs and is levied on your potential gains (even though the shares have not been sold and so no gain is realised).
This tax is deferred (until the shares are sold, reimbursed, etc) when the individual moves to an EU or EEA member state, or to a third country with a tax information and administrative assistance agreement and the individual is moving for professional reasons. A deferral may also be granted in other situations.
You may be able to mitigate this tax by moving the capital into an assurance-vie first, as they are exempt from exit tax. And the exit charge may be also cancelled in some situations
Think beyond capital gains tax
While your primary concern may be to reduce capital gains tax, also think ahead to what you plan to do with the proceeds. If you are selling a property, will you reinvest the capital into a new one? If you are selling shares or bonds, is this to spend the money or reinvest it? If you will be investing the capital, consider how this investment income and future gains will be taxed and what action you can take now to reduce this tax liability. Assurance-vie, again, can provide significant tax advantages in years to come.
Assets being transferred on death escape CGT – the tax liability essentially dies with the owner – but your heirs are likely to be liable for inheritance taxes instead, so plan ahead for that.
You should always look beyond your immediate tax concern to the bigger picture. For example, if you’ve decided to sell a property to stop paying France’s annual property wealth tax, weigh that savings up against what your CGT liability will be.
All in all, whether you are buying or selling an asset, moving to France or out of France, you should thoroughly research all the long-term tax implications and take advice to plan ahead to improve your tax position.
Blevins Franks has been helping British expatriates relocate to France for more than 45 years. Our team of tax specialists and investment experts work closely with our advisers to ensure our clients receive the most reliable information and guidance to legitimately minimise their tax bill.
Contact Blevins Franks now.
This article should not be construed as providing any personalised taxation or investment advice.