New Capital Gains Tax

for sale

With effect from 1st February 2012, the way capital gains is calculated will change on the sale of property which isn't your main residence, e.g., a second home or holiday home.

Today, the capital gains (or plus value) is calculated on the difference between the sum you paid for the property and what you sold it for minus allowable costs (such as Notaire fees at 7.5% and major improvement works (not repairs), if carried out by a professional builder registered in France. If the invoices cannot be provided, a deduction of 15% is applied for the works). French residents pay a tax rate of 28.1% and EU residents pay 19%. If you have owned the property for 5 years or less, then the tax rate is applied to the entire amount, but for every year you owned the property between 5 and 15 years there is a 10% discount resulting in a tax free sale after 15 years of ownership.

From 1st February 2012 tax free ownership is extended to 30 years. The first five years still gets the full tax rate but then reduces thereafter as follows:

  • 5-16 years of ownership reduces by 2% per year
  • 17-24 years of ownership reduces by 4% per year
  • 25-30 years of ownership reduces by 8% per year

The rate for French residents goes up to 32.5% but the rate for EU residents remains at 19%. The new rules are applied to all sales (completion, Acte de Vente, and not exchange of contracts, Compromis) taking place on or after 1st February 2012. Any completion before this date will be under the existing rules. What can be deducted regarding fees and costs is yet to be confirmed.

The tax is calculated by the Notaire when they draw up the Acte Authentique and is taken directly out of the money provided by the buyer for the purchase.

It is possible that this new law will have an effect on the French property market, especially in sought after areas such as the Languedoc-Roussillon. Owners that were thinking of selling, and have had the property for some time, will want to make a sale before the new changes come into effect and avoid having to pay more capital gains tax and social charges due to the decreased reduction per year.

Look out for some good value properties over the winter !!!