When you sell the property you own in France you will be liable for French capital gains tax on the gain that you make; ie the difference between the price you paid for the property and the price you sold it for.

French residents are subject to a fixed rate of 16 per cent tax on the gain plus social charges of 11 per cent. Non-residents pay tax at 16 per cent if resident in the EU, Norway or Iceland, or 33 per cent if resident elsewhere, with no social charges to pay.

The gain in France is calculated as the sale proceeds less acquisition costs. You can also deduct 7.5 per cent of the purchase price in lieu of actual acquisition costs, or the actual costs if documented, as well as the costs of disposal; eg estate agency and legal fees, transfer tax and notaire’s fees.

Improvement or enhancement expenses can also be deducted provided they have not already been taken into account for income tax purposes and must not be for routine maintenance expenses such as redecoration or new carpets. The improvements must have been carried out by registered contractors. Work carried out by the individual himself is not allowable. If the property has been held for at least five years, you can claim a deduction of 15 per cent of the acquisition cost in lieu of these expenses (even if no such work has been done to the property).

In calculating the gain on property, for each complete year of ownership in excess of five years there is a 10 per cent reduction of the taxable gain so that after 15 years there is no tax payable.

This reduction also applies where the property is held in a ‘transparent’ SCI company – so long as it has not become subject to corporation tax (and is therefore no longer transparent) due to it having furnished letting (or other trading) income. In any other corporate holding, the 10 per cent reduction does not apply and business capital gains tax rules apply.

If you qualify as a ‘professional furnished landlord’ there is no capital gains tax on disposal of the rental properties after five years of ownership so long as turnover does not exceed €250,000 (£188,693) in the French tax year (calendar year) of sale (time apportioned if the sale brings the business to a close).

A general abatement (abattement) of €1,000 (£754) per person (so €2,000 [£1,508] for a married couple) applies against property gains and where the proceeds of sale per property are no more than €20,000 (£15,095) per owner, the gain is exempt.

This exemption is available to each spouse or PACS partner (the French version of a civil partnership, open to both same- and opposite-sex couples in France), so disposal of a jointly owned property with a gain of up to €40,000 (£30,190) will be exempt from French capital gains tax.
The main home is exempt, as can be the first and second sales of un-let French property by a non-resident French national or an EU resident amongst others if at some time in the past they were resident in France for at least two years.

French capital gains tax due is calculated by the notaire and withheld at the time of sale.
 
The notaire then submits payment of the tax, declared on Form 2048 IMM, within two months from the notarised deed of sale. Non-residents are required by law to make a capital gains declaration supported by a tax representative accredited by the French tax authority.

CASE STUDY ONE

Mr and Mrs X bought a stone cottage with a small barn and some land for €225,000 (£169,824) in 2005, in the Dordogne area of France, close to Bergerac. They moved there and spent a good eighteen months renovating it, with a view to either starting a B&B or perhaps selling and moving elsewhere. Mr and Mrs X did most of the work themselves and employed tradesmen a few times when it was a job they could not cope with themselves. Unfortunately, these were not registered contractors and so the costs of their input to the improvement of the property could not be deducted against the capital gain.

Mr and Mrs X spent approximately €39,000 (£29,436) on the renovation work and sold the property in early 2008 for €335,000 (£252,849). As the sale was within five years of ownership, they could not make deductions of 10 per cent for each year held after five years. They had no record of their costs of acquisition or disposal.

Sale price: €335,000 (£252,849)

Less purchase price: 225,000 (£169,824)
Gain realised: €110,000 (£83,025)

Less 7.5 per cent acquisition costs: €16,875 (£12,736)
€93,125 (£70,288)

Tax due @ 16 per cent of
€93,125 (£70,288): €14,900 (£11,249)

Social charges @ 11 per cent
of €93,125 (£70,288):  €10,244 (£7,731)

Total tax: €25,144 (£18,978)

CASE STUDY TWO

Mr Y was attracted to Cannes on the French Riviera. He loved the glamorous lifestyle, the festivals and the climate. He travelled there as often as he could get away from his work in the UK and in 2000 bought a one-bedroom apartment to use on his visits which he also viewed as an investment.

Seven years later, however, Mr Y decided to sell his apartment and move to a larger one in a better location in Cannes. He was even thinking of relocating there in the near future.

Mr Y bought his first apartment for €425,000 (£320,778) and sold it for €530,000 (£400,030), and his documented acquisition and disposal costs totalled €10,500 (£7,925). As a UK and therefore EU resident he was liable for 16 per cent tax on the gains on his apartment but not the social charges. He was also able to deduct 20 per cent of the gain
(10 per cent for each year of ownership after five complete years).

Sale price: €530,000 (£400,030)

Less purchase price: €425,000 (£320,778)

Less incidental acquisition/
disposal costs:  €10,500 (£7,925)

Gain realised: €94,500 (£71,326)

Less 20% of €94,500: €18,900 (£14,265)
 €75,600 (£57,060)

Tax due @ 16% of €75,600 €12,096 (£9,129)

Social charges:  n/a

As a UK resident, Mr Y is also liable to tax on this gain in the UK. He sells the property after 6 April 2008 and is liable to tax of 18 per cent of the gain (€94,500/£71,326) in the UK. Thus, his UK tax liability is €17,010 (£12,838). In order to avoid double taxation, he may offset the French tax paid against the UK liability. Thus he pays €12,096 (£9,129) in France, and a further €4,914 (£3,708) is due in the UK.

CASE STUDY THREE

Mr and Mrs Z moved to the southeast of France to the Languedoc-Roussillon region when Mr Z retired in 1994. In addition to their main home, they bought a house in one of the villages near to Carcassonne to rent. It was a typical French house, a nice size and on three levels with two bedrooms and a cellar.

They very much enjoyed their retirement there but when Mr Z unfortunately became ill in 2007, they decided to move back to the UK and live with their daughter and family.

Mr and Mrs Z had owned both properties for 13 years. They sold both properties before they returned to the UK. As they were living in their main home at the date of disposal, the gain was exempt from French capital gains tax.

They paid the equivalent of around €65,000 (£49,060) for the rental property and sold it for €130,000 (£98,120). As French residents, they were liable for 16 per cent tax on the gain and 11 per cent social charges. They were also able to deduct 80 per cent of the gain (10 per cent for each year of ownership after five complete years). They had no record of their acquisition or disposal costs.

Sale price: €130,000 (£98,120)

Less purchase price: €65,000 (£49,060)

Less 7.5 per cent acquisition costs: €4,875 (£3,679)
  
Gain realised: €60,125 (£45,380)

Less 80 per cent of €60,125 (£45,380): €48,100 (£36,304)
   €12,025 (£9,076)

Tax due @ 16 per cent of €12,025 (£9,076) €1,924 (£1,452)

Social charges @ 11 per cent of
€12,025 (£9,076) €1,323 (£998)

Total tax: €3,247 (£2,451)