Today is: 18 May 2012
Please note that tax law is a complex subject and you should not rely on this article without professional advice on the facts of your case
The French Finance Act 2011 which has recently been passed contains the following matters of interest to foreign investors in French property.
Increase in Capital Gains Tax on Property
Capital gains tax for EU residents goes up from 16% to 19% of the gain. The tapering exemption at 10% of the gain after 5 years continues so that after 15 years no French capital gains tax is payable. French residents pay social contributions on the gain but non French residents do not.
Capital Gains Tax exemption on sale of French houses
There has for some years been a useful exemption from French capital gains tax on the sale of up to two French residential properties by non French residents. In order to qualify you had to:
- Be resident, at the date of disposal, in the EU or a country with which France had a double tax treaty;
- Have been a French resident for at least two years at any time before the sale; and
- Have the property available for you to occupy (e.g. not rented out) from 1st January of the year before you sell.
If you came within this exemption you paid no French capital gains tax.
If you then sold a second property in France, 5 years or more after the first sale you were again exempt from capital gains tax provided you satisfied the conditions above and the second property was your only French property at the date it was sold. This property could be one you had owned for many years or purchased after selling the first one. This second sale exemption has been withdrawn by the Finance Law 2011 from 1st January 2011.
The first sale exemption continues and this can be helpful if you have lived in France in the past. It applies to all EU residents. It also means you do not have to pay for a tax agent on a sale as there is no French capital gains tax liability. You may still have a UK tax exposure if you are UK resident but this could be avoided if you elected for the French property to be your main residence which is permitted under UK law even if you remain a UK resident taxpayer. Non UK domiciled people may also be able to avoid UK capital gains tax by not remitting the sale proceeds to the UK.
Wealth Tax
Wealth tax applies each year to any French property owned directly or indirectly by non-French residents on the 1st January. The net value of all French property you own is taxed at banded rates. French residents are subject to this tax on the value of their worldwide assets. The Finance Act contains new bandings as set out below, which increase the threshold at which the tax becomes payable:
| 0 € – 800,000 € | : | 0% |
| 800,000 € - 1,310,000 € | : | 0.55% |
| 1,310,000 € - 2,570,000 € | : | 0.75% |
| 2,570,000 € - 4,040,000 € | : | 1% |
| 4,040,000 € - 7,710,000 € | : | 1.3% |
| 7,710,000 € - 16,790,000 € | : | 1.65% |
| 16,790,000 € + | : | 1.8% |
There are a number of ways in which Wealth Tax can legally be avoided or reduced. Some of these involve debt arrangements in which mortgages are taken out typically with Luxemburg or Monaco based banks. Other cheaper but equally robust structures which do not involve borrowing are available.
January 2011