French Property - changes to Capital Gains Tax due on second homes

After Sarkozy's increase of capital gains tax, French property sales were reported to drop by over 12%. To reverse this trend and boost property sales the French government has made changes to the Capital Gains Tax due on second homes. From 1st September 2013*: Capital Gains (plus-value) - Those owning a second home in France for more than 22 years will have complete exemption from capital gains tax (CGT) - this is a reduction from 30 years. - The rate of tax will remain the same. - There is tapered relief from the 6th year of ownership - 6% a year from the 6th year and 4% in 22nd year. Example: a property owned for 10 years is eligible for 30% discount on CGT. One held for 15 years is eligible for a 60% discount. Social tax liability (Prélèvements Sociaux) - Will continue to expire after 30 years. - There is tapered relief of 1.65% per year from the 6th year of ownership, 1.6% for the 22nd year, 9% for the 23rd to 30th year. Example: a property owned for 10 years would qualify for 8.25% discount on the social charges. One held for 15 years would qualify for a 16.5% discount. Supplementary Discount - There is a supplementary and temporary additional discount of 25% for properties sold between 1st September 2013 and 31st August 2014 - The discount applies to both capital gains tax and the social charges. - The above dates relate to signing of the deed of sale (acte authentique), not the sale and purchase contract. Example: a sale and purchase contract signed before 1st September 2013 but completed after this date would come within the new rule. Supplementary Capital Gains Tax - Will continue to apply on gains over €50,000 although it will also be eligible for the 25% discount. - Calculation of liability to the tax will depend on the number of owners with the total gain being divided between the owners. Example: Two joint owners who make a €99,000 capital gain would not pay the supplementary tax. *Please note that while French Parliament has yet to vote on this issue the government states this is mere formality. Sample Calculation A property is purchased by an EEA resident couple in August 2005 for €200,000. It is sold 9 years later in August 2014 for €260,000 giving a gross capital gain of €60,000. After applying the standard allowances for transaction costs and building works the gross capital taxable gain is €14,000. With further reductions in liability for duration of ownership, as well as the 25% supplementary discount, the net tax payable (capital gains and social charges) is €10,964.

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© Copyright Campion (UK) Ltd 2017.
FRANCE PROPERTY SALES SARL C.P. No CPI 7401 2016 000 004 662