|
CAPITAL GAINS TAX FACT SHEET
The
purpose of this fact sheet is to provide some basic information and
guidance in relation to the capital gains tax (hereafter referred to as
‘CGT’) position of a non-French resident who has purchased real estate
property in France. This is a
complex area and individual, personalised advice should be sought where
necessary.
CGT
payable at the time of re-sale of the property
The
sale of real estate property gives rise to CGT liability should a profit
have been earned. It is
payable on the appreciation in value between the original purchase price
and the sale price. For a
non-French resident, the tax is payable at the time of sale and will be
taken from the sale’s proceeds.
Treatment
of tax liability in country of residence
The
treatment of the capital gain in one’s country of residence for taxation
purposes will depend upon the provisions of the double taxation treaty in
force between
France
and that country.
For example, residents of the UK
must declare the gain earned and tax paid to the
Inland Revenue on a self-assessment form.
They will not be taxed twice but will receive a tax credit for the
French tax paid, only paying any more should the UK
tax exceed that already paid.
Method
of calculation of the tax
For
those transactions not exonerated from CGT (principal residence or those
transactions falling within another exoneration e.g. first sale of a
second home five years after purchase where the owner does not own his or
her principal residence e.t.c.), the tax is calculated by subtracting the
original purchase price from the sale price.
It is possible to deduct costs such as original purchase costs (notaire’s
fee, estate agent’s fee), cost of renovation work (but not simple
re-decorating costs), mortgage interest e.t.c., providing that the
aforementioned have not been deducted for income tax purposes.
In addition, it is possible to make an allowance for monetary
erosion calculated by application of a table in accordance with the year
of purchase of the property.
The
amount of the taxable gain is then subject to tapered relief if it has
been owned for more than two years. For
each year that the property has been held beyond this initial two year
period, the gain is reduced by 5% (for ten years of ownership, the
reduction is thus 40%). Therefore,
if a property has been owned for more than 22 years, the relief is 100%
and no CGT is payable.
There
is also a tax free band of 6,100 Euros (for a married couple) and 4,600
Euros (for a single person) that can be applied to the first sale of a
second home.
Rate
at which the tax is paid
A
non-French resident pays CGT at a rate of 33.33%.
Taxation
of residents
Those
resident in France
are taxed in accordance with their income tax position
e.g. the capital gain earned features on their income tax declaration and
is calculated by means of the tax bands following application of personal
allowances e.t.c. The method
of calculation differs in accordance with whether the property has been
owned for less than two years (‘plus-values à court terme’) or more
than two years (‘plus-values à long terme’).
Taxation
representative
If
the sale price exceeds 100,000 Euros, for those that are not resident in
France
a fiscal representative domiciled in France
must be appointed to oversee the payment and
administration of the tax. This
must be a person or body approved for this purpose by the French tax
authority.
The
position of those who make regular
sales
of property
Those
who regularly sell real estate property and make a gain on it could be
qualified as ‘marchand de biens’ and taxed accordingly.
A non-French resident in such a situation would pay CGT at a rate
of 50%.
27/10/2003
- Issue of the week
BACK
TO NEWS
|
