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French capital gains tax( impot sur les plus values)

There are three categories of capital gains tax depending on the type of transaction in France: the capital gains tax on the sale of real estate; the capital gains tax on the sale of shares; the capital gains tax on the sale of personal property (movable goods), such as, for example, yachts and precious metals.

In this article, we will tell in details how the French capital gains tax Impôt sur les plus values immobilières is calculated concentrating mainly on the capital gains tax on the sale of real estate.

When french capital gains tax is applied

Capital gains tax in France payable on the sale of real estate (land or buildings) applies to individuals or to property held within a company, such as a Société Civile Immobilière (SCI) that is also subject to the income tax.

The tax is imposed from capital gains arising in case of the property rights transfer, associated with the costs of the built as well as unbuilt real estate (unfinished facilities, buildings and plots for construction). The tax also extends to the property rights of “use fruit” (usufruit) and to the "nude" property rights (nue-propriété).

Nue-propriété is the reversionary interest in property, which grants the right of the freehold to a property, without the right to use it. A nue-propriétaire can sell, but a usufruitier has the right to remain in occupation. Accordingly, a usufruit has the right to use property and to enjoy the revenues from it i.e., use fruit, without the right to destroy it or to sell it. The right can exist for a definite period of time or for the life of the user. Where it is for the life-time of the user it is known as a property ‘en viager’. So, usufruitier and nue-propriétaire each have to pay the capital gains tax.

The applicable tax rate for gains on real estate also depends on the country of residence for taxation purposes. French residents are taxed in France, except when the transferred property is in a country that concluded a tax agreement with France. Non-residents are taxed in France, if the transferred property is located in France.

Non taxable capital gains

There is a complete exemption from the capital gains tax on the sale of the principal home (main residence) and outbuildings to it (such as, for example, a garage, a parking lot, a guardhouse). However, this rule applies exclusively to residents, since it is a question of the main residence.

However, non-residents can receive special tax exemptions under certain conditions (duration of French ownership, citizenship of one of the EU countries, etc.) for the property that is located in France. In all the cases, the tax exemption is limited to 150,000 euros of net capital gains.

3 stages of capital gains tax calculation

First stage

Gross value gain is the difference between the sale price and the purchase price.

The selling price is the value of real estate set by the seller (the owner), written in the sale and purchase deed. The seller has an opportunity to reduce it for acquisition costs or more if documented (commission to intermediaries, the cost of diagnostics, fees to architects for preliminary check of construction rights and other costs).

The purchase price is the cost of the purchasing property that is written in the sale and purchase deed. If it is a question of obtaining the property for free, then the purchase price will be the amount that is written in the gift agreement or declaration of inheritance.

This amount of gain is adjusted by the following elements:

• expenses for acquisition (expenses for examination, notary fees). The exception is the fees for donation and inheritance. Another possibility is to accept costs equal to 7.5% (a predetermined percentage) of the purchase price;

• Expenses related to various works that could be carried out during the whole period of property ownership (construction, reconstruction, expansion, renovation costs). They are made up of the actual costs incurred by the enterprise and confirmed by checks;

•If the sale is made later than five years after the purchase date, the owner (seller) is entitled to a fixed reduction of 15% to the purchase price or to deduct the actual costs if this is more profitable.

second stage

Net capital gains is a result from the allowance application for the duration of the property ownership. When selling real estate, the ownership of which was more than 5 years, there are the application of tax reliefs for the gross capital gains.

Nowadays tapered relief of 4% against the tax is granted over 22 years of ownership, commencing from the 6th year of ownership, as follows:

·         No allowance for the first 5 years of ownership.

·         Between 6 and 21 years of ownership: 6% allowance per year.

·         For the final 22nd year of ownership: 4% allowance.

It is important to know that the calculation only takes into account full years of ownership. Thus, the gains from the real estate sale is exempt from the tax after 22 years of ownership. The property, which value is decreased over the time, is exempt from this tax.

third stage

The basic rate of capital gains tax is 19%. Social charges are applied on top, which are now 17.2% since 1 January 2018. This means that the basic gross tax rate for residents of France and non-residents is 36.2%.

On the 26th of February 2015 in Luxembourg Court of Justice of the European Union (CJEU) made a decision for a unified tax of 19% for both non-residents of France from the European Union member states and non-residents (individuals and members of the SCI) living outside the EU / EEA.

capital gains surtax

In case of net capital gains (after the application of tax allowances) exceeds 50,000 euros, an individual or member of SCI pays a surtax. The rate of supplementary tax varies from 2% to 6%, depending on the amount of gain. The calculation is made on a progressive scale (see the table below).

Amount of gain

Surtax rate

From 50 000 to 60 000 €

2% PV — (60 000-PV)x1/20

From 60 001 to 100 000 €

2%

From 100 001 to 110 000 €

3% PV — (110 000-PV)x1/10

From 110 001 to 150 000 €

3%

From 150 001 to 160 000 €

4% PV — (160 000-PV)x15/100

From 160 001 to 200 000 €

4%

From 200 001 to 210 000 €

5% PV — (210 000-PV)x20/100

From 210 001 to 250 000 €

5% PV

From 250 001 to 260 000 €

6% PV — (260 000-PV)x25/100

Above 260 000 €

6%

capital gains tax exemptions for the each year of ownership

In case of selling property

Duration of ownership

Tax rates

Social charges

Under 6 years

0%

0%

From the 6th to the 21st year

6%

1,65%

22nd pass year

4%

1,60%

Beyond the 22nd year

9%

 

In case of selling the land for construction purposes

Duration of ownership

Tax allowances

Under 6 years

0%

From the 6th to the 17th year

2%

From the 18 to the 24th year

4%

Beyond the24th year

8%

Attention: it is necessary to keep all the bills and other documents confirming the costs of the construction and renovation works.