Capital Gains Tax Changes in France
The French government has indicated, since the last Finance Act, that it is to increase taxation for French property owners.
It has already increased the Capital Gains tax rate from 16% to 19% since January 1st 2011. In July of this year it sought to introduce a new tax based on the rental value of properties, which was due to have affected properties held by non-residents, although this proposal was sidelined as it would have broken EU rules on treating foreigners and residents the same. At the end of August the government proposed removing the capital gains tax exemption currently available for properties held for more than 15 years.
This exemption has been available since 2004 for sellers of secondary residences or rental properties. A 10% allowance is granted for each year of ownership from the sixth year, thereby giving a total tax exemption for a sale after 15 years of ownership.
Initially announced to take place immediately, the implementation date for this reform has now been postponed until February 1st 2012, and the initial proposal for full removal of the exemption has been diluted slightly.
This law has not yet been passed by Parliament, but the following is a broad outline of the proposed reforms:
- The current tax rules remain applicable until January 31st 2012, except for transfers of properties to a company (SCI – which affects most owners of Leaseback property) for which the new rules apply from the date of announcement of the reform i.e. August 25th 2011.
- From February 1st 2012 a full capital gains tax exemption will apply only for properties sold after 30 years of ownership. No exemption will apply for properties held for 5 years or less. From the sixth year of ownership, relief will apply pro-rata per year of ownership, at an increasing rate of 2% (from the sixth year to the 17th) 4% (from the 18th to 24th year), and 8% (from the 25th to the 30th year).
For example, a gain of €100,000 on a property bought on 1st September 1996 and sold on 1st October 2011 remains fully exempt. However, if the same property is sold on 1st February 2012, only 20% of the gain would be exempt (taper relief applicable over 10 years at 2% per year), that is an additional tax of €15,200. The tax liability will be even higher if the seller is a French resident, as social contributions (currently at 12.3%, going up to 13.5% from 1st January 2012) will be payable.
You must not forget that you may be liable also to capital gains tax in your country of domicile, with the possibility for double tax relief to apply (for example Irish capital gains tax will be chargeable for a Irish tax resident seller selling a French property).
If you are considering selling your French property it is important to understand the impact of this reform. The proposed reforms could also mean that we will see a buyers’ market before the new rules come fully in to force.
For further information on the potential affects of these changes on your property ownership in France please visit Furley Page Solicitors who provided the information for this article – www.furleypage.co.uk.
