Capital Gains Tax in France

Question: Hi Alex, I have two apartments in Villefranche-sur-Mer, my question is, after owning them for 22 years are they both exempt from the capital gains tax in France or just one of them?

Thanks, Paul.

Answer: As I know you'll appreciate I am not an international taxation specialist, and so the advice I can give on this point will be of a general nature rather than specific to your personal circumstances.

In France CGT is paid on the sale of second homes, not on the sale of one's principal residence. So if you live full time in one of your apartments, and have done tax returns on earnings in France, then that is regarded as your principal residence and CGT is not applicable. However, if this is not the case and they are both second homes, then CGT is payable.

If you have been permanently resident in France and you are selling your principal home then any capital gain is fully exempt from capital gains tax and social charges.

In order to qualify the property must have been occupied by you on a habitual basis, although you need not actually be occupying it at the time of sale. However, if you leave the property before it is sold, you will only be entitled to claim main residence exemption if the property is sold within 12 months after you have ceased to use the property as your main home. In addition, you are not permitted to let out the property during the intervening period, or to leave other family members in occupation.

If you are selling an investment property, which does not qualify for the main residence exemption, you will benefit from progressive taper relief dependent on how long you have owned the property.

There are separate scales applying to calculate the gain subject to tax and the gain subject to social charges:

• the gain subject to tax is reduced by 6% for each year of ownership after the 5th year up to the 21st year. A reduction of 4% applies in the 22nd year, giving 100% relief after 22 years,so on the face of it it looks like you may well benefit from this exemption.

• the gain subject to social charges is reduced by 1.65% for each year of ownership after the 5th year up to the 21st year. A reduction of 1.60% applies in the 22nd year, followed by a reduction of 9% each year from the 23rd to the 30th year. This provides for 100% relief after 30 years, so it may be that there is a social charge element for you to pay.

As always I would advice taking tax advice specific to your circumstances, and of course these rules do change in France quite regularly, so it takes a tax professional to be fully up to date with the very latest developments.

I hope that has at least been of some assistance.