Capital gains tax impacts many people and UK nationals living in France need to follow both the French and UK rules. Here we look at how property and capital investment gains are taxed in France; France’s exit tax, the benefits of assurance-vie, and what happens if you own UK assets.
When we buy assets like property and shares, the aim is for them to increase in value, hopefully providing us with a rewarding profit when we come to sell them. The one downside is having to give some of our gains to the taxman. But is this always the case and does it have to be as much tax as we fear? What can we do to enable us to benefit from more of our profits?
French capital gains tax on property sales
The most important question for most people is whether they’ll have to pay tax when selling their home.
France potentially allows you to sell your main home without any liability to capital gains tax, but this relief applies in a particular way – it’s all or nothing. The French authorities focus on where you live at the time of sale. Put simply, if you were residing in the property when it was sold, you will not have to pay tax. It doesn’t matter if you did not live in it for extended periods of time or used to rent it out, just as long as you were living in it as your principal residence at the end.
On the other hand, if the property was your home for many years, but you moved out a year or two before it was sold, you may be liable for tax on the full gain. The tax authorities do allow a grace period when it comes to selling a former residence; strictly speaking, it is 12 months, but there is some leeway that could potentially extend it to 18 months. If, however, you rent it out between vacating and selling it, you invalidate this and the rental earnings could fall far short of your capital gains tax bill.
For properties not classed as a main home, gains are taxed at 19% for amounts up to €50,000. After this, it is 19% plus surcharges between 2% and 6%. Social charges are an additional 17.2%, reduced to 7.5% if you have Form S1. The top combined rate is 42.5%.
Fortunately for people who have owned their property for a long time, France operates a taper relief according to length of ownership. The gain is gradually reduced for tax purposes to the point where it becomes fully exempt from tax after owning it for 22 years. And after 30 years it’s also exempt from social charges.
There can be other exemptions besides the main home one. 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 a main home and did not own one the previous four years.
Capital gains tax on shares and other capital investments
These days France has a relatively straightforward regime for the taxation of capital gains made on the sale of shares/equities and other securities. They are taxed the same as interest and dividends, which is at a flat rate of 30%. This covers both tax and social charges, so if you only pay the 7.5% solidarity charge (you are retired and covered by another state’s health system) your flat rate reduces to 20.3%.
Taxpayers on lower incomes can opt to be taxed under the old system, where you pay tax at the income tax rates. Shares acquired before 2018 would benefit from taper relief.
France’s exit tax
Be aware that France applies an ‘exit tax’, essentially a capital gains tax, even though you’re not selling the asset.
Exit 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 you depart and is levied on your potential gains.
This tax is deferred (until the shares are sold, reimbursed, etc) if you move to an EU or EEA member state or third country with a tax information agreement if moving for professional reasons.
Assurance-vie
Assurance-vie is a popular savings arrangement in France, and for good reason. Besides reducing income, succession, and potentially wealth tax, it can also be a powerful way to mitigate or eliminate capital gains tax.
If you own shares and investments directly, without the benefit of a wrapper, every time you make a trade on the portfolio, it should be declared and assessed for capital gains tax, even if you are not taking withdrawals.
Assurance-vie eliminates this problem since trades within the structure occur without a tax liability. You only pay tax on withdrawals and then only on the growth element of the withdrawal. This can result in significant tax savings, and, as a bonus, your tax compliance becomes much easier, regardless of the complexity of the underlying portfolio. You don’t need to convert Sterling investments into Euros if that doesn’t suit you, and these policies also protect you from exit tax if you leave France.
While assurance-vie can provide many benefits, do your homework before choosing one to confirm it suits your circumstances and objectives.
For more information on French taxes, you can download our free guide.
UK capital gains tax
French residents selling UK assets need to watch both tax regimes. Many assume they won’t pay UK tax when selling a UK property since they’re tax resident in France, when in fact they do, though only on the gain made since April 2015. You will also be assessed for French tax but won’t pay tax twice (but do pay the higher amount).
This can present a dilemma – it’s tempting to delay a sale to reduce or avoid the French tax, but this could increase your UK capital gains tax liability. There may be a sweet spot in terms of the period of ownership, taking into account both French and UK liabilities where the overall tax is at its lowest; you would need to do some careful calculations.
Don’t forget that the UK tax allowances are frozen until 2028 rather than increasing with inflation. The capital gains tax allowance was locked at £12,300 in March 2021 but then halved to £6,000 in April 2023 and cut again to £3,000 from this April. This is expected to raise an extra £1.6 billion for the government by the end of the 2027/28 tax year.
If you still have assets in the UK and intend to continue living in France, this is a good time to question whether you should leave them there. How much tax could you save in the long term if you move them out?
All in all, whether you are buying or selling an asset, thoroughly research all the long-term tax implications and take advice from Blevins Franks to plan ahead to improve your tax position.
Contact us today.
This article should not be construed as providing any personalised taxation or investment advice.
