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Capital Gains Tax - European Nationals (Sep 2013)

A modification of the legislation relating to the taxation of capital gains on real estate has been voted into law. Capital gains taxes are currently levied on the sale of properties which have been held for less than 30 years.

For members of the European Union and as from the 1st September 2013, a reduction has been made to the capital gains liability. The sale of a property which has been held in the name of an individual will now be exonerated after 22 years. Social charges are still levied on the sale of a property for the full 30 years of ownership. The calculation is based on the difference of the sale price of the property to the price of acquisition. An amount equivalent to 7, 5 % of the declared purchase price is allowed to cover the purchase costs.

In the absence of a purchase the figure is calculated using the declared value at the time of a succession or donation and the actual costs of the transaction can be added.

The costs of some improvements to the property can also be taken into account. There are two options available.

  • Improvements or extensions to a property by registered artisans can usually be deducted if there are official invoices. Renovations, maintenance and repairs are not deductible however, nor are works for which income tax deductions have already been granted. It is worth getting further clarification on this point if unsure about the nature of works.
  • The alternative for properties held for more than 5 years is to deduct a flat rate based on 15% of the purchase price. This is an allowance for improvements in lieu of works done. Non French residents need to appoint a guarantor who will assess the tax liability to be held back and stand caution. The cost of this service can be around 1 % of the sale price. Speak to your notaire prior to sale to explore the best way to deal with this obligation.
It is worth noting that principal residences are exempt from capital gains tax so these laws apply to second homes.

The rate of tax to be levied is currently 19% to which social charges are also levied. We will deal with each separately as the method of calculation is different.

  • The tax rate for properties held for less than 22 years will be calculated on a sliding scale. No discount will apply during the first five years of detention. From the fifth year (between 6 and 21 years) a reduction of 6 % will be applicable for each year of detention. For the 22nd year a final allowance of 4 % is made thus reducing the liability to 0%.
  • Social charges are calculated at 15, 5 %. They reduce to 0% over 30 years and are calculated as follows. No discount will apply during the first five years of detention. They are then reduced at a rate of 1, 65% for each year from the 6th to the 21st. The 22nd year is reduced by 1.6% and the remaining years are calculated at 9% until full exemption is reached after 30 years.

During the course of the current year there is an additional reduction for 25% of the total tax liability, inclusive of social charges, which will apply to transactions signed and prior to August 31, 2014. This has been implemented with the intention of stimulating the property market.

It should be noted that building land is not subject to the same reductions.

The law relating to capital gains is complex, subject to regular changes and legal advice should be taken at the time of sale.

 
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