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If you are moving to France or returning to the UK, the proceeds from any property sale often plays a large part in establishing your future quality of life. Besides determining what property you can buy next, any balance may be invested to generate additional income in retirement or to be available as needed in your future years.
Therefore how much of your proceeds, if any, you lose to tax and costs is very relevant. You should also look for the most tax efficient way of holding the money once you receive it.
Obviously, the less profit you lose to tax the better, so you need to understand all the capital gains tax rules, and if there are any steps you can take to lower your liability. The same applies to tax on your capital.
If you are moving from or to the UK, you need to consider the tax implications in both countries, and look for the most effective ways to sell your assets and hold any new ones. You should take specialist advice that covers both countries to ensure you use the most tax efficient arrangements available, and to understand how the UK/France double tax treaty affects you and how to use it to your advantage.
French capital gains tax on property
Recent changes in France have made capital gains tax even more expensive and complex.
Capital gains on property are taxed at a fixed rate of 19%, but the 2013 Finance Bill has now introduced an additional tax. This starts at 2% for gains over ?50,000 and rises progressively to 6% on gains above ?250,000.
When you add the 15.5% social charges, some people will now pay as much as 40.5% tax on their gains ? getting on for half their profits.
There is taper relief for length of ownership, but although there was speculation that President Hollande would revert to the old system where gains were completely tax free after 22 years, this did not happen. A proposed extra 20% deduction for 2013 was abolished by the constitutional court.
Under the current rules, once you have owned your property for six years you start to get 2% tax relief for every year of ownership, increasing to 4% after 18 years and 8% after 25, making the gain tax free after 30 years, so the majority of the reduction is given in the last five years.
The main home remains exempt from tax in France, provided it is your habitual and actual residence at the time of the sale and you are fully integrated into the French tax system.
Non-residents used to escape social charges, but controversially M. Hollande removed this exception last year. Non-residents now have to pay social charges on capital gains and rental income.
UK residents are also liable for tax in the UK. Under the double tax treaty, you do not pay tax twice, but you will pay the higher amount.
Unfortunately the treaty exempts social charges from the definition of taxes for double tax relief purposes, so you do not receive any credit in the UK for having paid social charges in France. Since these charges are considered a social security contribution, HM Revenue & Customs will not allow unilateral relief either.
So if your UK tax liability is higher than your French one, further tax is due in the UK and you have to pay the full social charges as well. A UK resident may therefore also potentially lose as much as 43.5% of their sale proceeds (28% UK capital gains tax plus 15.5% French social charges), and should take advice on the best solution for them.
Capital gains on investments
There are also new rules for the taxation of capital gains made on shares and other securities. These used to be taxed at a fixed rate of 19%, but now such gains realised during 2012 will be taxed at 24%.
From 2013, gains will be taxed at the progressive rates of income tax, which range from 5.5% for income over ?5,964 to 45% for income over ?150,000. A temporary surcharge currently adds 3% tax for income over ?250,000 and 4% for income over ?500,000.
And of course you also pay 15.5% social charges.
Reliefs have been introduced according to the length of ownership. These range from 5% for shares held for two or three years to 40% after twelve years, but this period is only taken from 1st January 2013.
If you own shares directly and buy and sell them, you could be paying more tax than necessary on your gains. There are other ways to hold investment assets, for example in the right type of Assurance Vie, which would significantly reduce your tax liabilities. You may not have any tax liabilities at all if you plan to allow your income and gains to ?roll up? within this tax favoured structure.
Exit tax
You do not necessarily escape French tax on gains made on your shareholdings by waiting until after leaving France to dispose of assets. An exit tax, plus social charges, is imposed on such gains for those leaving France, applied to the gain made while French resident. The new capital gains tax rules apply to the exit tax as well.
There are detailed rules on this exit tax so you should take advice on how it affects you and if there is anything you can do to avoid it.
Selling property
You have to employ the services of a notaire when selling a French property. Where capital gains tax is due, he withholds it at the time of sale. You also need to look into what other costs may be deducted to understand exactly how much you will receive.
Non-residents are required to make a capital gains tax declaration supported by a tax representative accredited by the French tax authority.
Do not risk paying more tax than you absolutely have to. The only way to fully understand how all the rules apply to you, and what you can and cannot do to save or avoid tax, is to take advice from a specialist like Blevins Franks who is au fait with the tax considerations for both France and the UK.
8 February 2013
The 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 should take personalised advice.
