Capital Gains Tax ? Small Window Of Opportunity To Save Tax In France And UK

02.05.14

Please note that this article is over six months old. While Blevins Franks takes care to make sure that information is accurate on the date of publication, some content may change over time. You should not rely on the accuracy of legislation and tax information in this article; take professional advice for your circumstances.

Are you selling a property in France?  If you act quickly you could save yourself a fair amount of tax. If you are resident in France and have property in the UK for sale, you have a small window of opportunity to save tax in both France and the UK.

Are you selling a property in France?  If you act quickly you could save yourself a fair amount of tax.

If you are resident in France and have property in the UK for sale, you have a small window of opportunity to save tax in both France and the UK.

Capital gains tax in France

French residents are liable to capital gains tax on gains made on real estate, whether the property is located in France, the UK or elsewhere.  The fixed rate of tax is 19%, but the gains are also currently subject to surtaxes.  Then on top of the tax, you have to pay social charges at 15.5%.

AMOUNT OF GAIN

SURTAX RATE

TOTAL TAX RATE  (I.E. 19% PLUS SURTAX)

TOTAL RATE INCLUDING SOCIAL CHARGES OF 15.5%

Up to €50,000

0%

19%

34.5%

Between €50,000 and €100,000

2%

21%

36.5%

Between €100,000 and €150,000

3%

22%

37.5%

Between €150,000 and €200,000

4%

23%

38.5%

Between €200,000 and €250,000

5%

24%

39.5%

Above €250,000

6%

25%

40.5%

 

France does however apply a taper relief system, so that taxes and social charges are reduced the longer you have owned the property.

Tax – total exemption after 22 years
•    6% per year after the first 6 years of ownership up to and including year 21
•    4% for year 22

Social charges – total exemption after 30 years
•    1.65% per year after the first 6 years up to and including year 21
•    1.6% for year 22
•    9% for each year from year 23 to year 30

There is also a 25% discount from the calculated gain in France, available on all disposals of property by French residents (and of French property by non-UK residents) up to and including 31st August 2014.  This means that, once all reductions for length of ownership have been made, 25% of the remaining gain will be completely free of both tax and social charges.  Given that the total tax liability can be as high as 40.5% in France, this will reduce a tax bill quite significantly.

Your main home is exempt from capital gains tax in France provided it is your habitual and actual residence at the time of sale.  This exemption is unlikely to be available to you if you have lived in France without being fully integrated into the French tax system and registered for tax purposes.

UK property

UK property sold by non-residents will become liable to UK tax from April 2015.  At present, therefore, French residents who own UK real estate have a great opportunity to realise the gains at a minimum of tax in both countries, provided that the contracts have been exchanged by 31st August 2014 (which is the date that the contract becomes binding in the UK).  They can use these funds to invest tax-efficiently to reduce their taxable income (and therefore their liability to income tax and social charges), as well as potentially minimising wealth tax, and reducing exposure to French taxes on death (and avoiding UK inheritance tax completely).

It is a win-win situation all around, provided you take action before 31st August 2014.  Otherwise, if you sell the property in France, you would need to hold onto it for several more years to benefit from the same reduction, and by that time, the growth would be taxable in the UK.

If you would like to discuss this further, or review whether your assets are structured in the most tax efficient way, please call or email us.

30 April 2014

Tax rates, scope and reliefs may change.  Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change.  Tax information has been summarised; an individual is advised to seek personalised advice.

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.

Have a General Enquiry?

Get in touch
Expand Form