Capital Gains Tax (Impôt sur les Plus-Values)
Introduction
In French legislation, there are three categories of capital gains tax: capital gains tax on real estate transactions, capital gains tax on movable property and social rights/shares transactions, and capital gains tax on transactions involving assets used for personal purposes, such as yachts and precious metals.
In this article, we will provide a detailed explanation of how the Capital Gains Tax (Impôt sur les Plus-Values immobilières) is calculated, which pertains to capital gains resulting from real estate transactions.
In which cases is the capital gains tax applied
The capital gains tax on the sale of real estate applies to transactions involving the sale of property by individuals or through a civil real estate company (SCI) that is subject to income tax.
The tax is levied on the capital gain resulting from the transfer of ownership rights, as well as associated with expenses related to constructed or undeveloped real estate (unfinished properties, constructions, and land plots intended for construction). The tax also applies to property rights, including the transfer of usufruct rights (usufruit) or "bare" ownership rights (nuepropriété) without the right to use.
It's important to remember the following specifics: French residents are subject to taxation in France, except in cases where the property being transferred is located in a country that has a tax treaty with France. Non-residents are subject to taxation in France if the property being transferred is located on French territory.
Exempted Capital Gains
There is a complete exemption from capital gains tax on the sale of the main property and its annexes (such as a garage, parking, or caretaker's house). However, this rule applies exclusively to residents since it pertains to the main property.
Nevertheless, non-residents, under certain conditions (ownership of property in France for a specific number of years, citizenship in one of the EU countries, etc.), can benefit from special tax advantages for properties located in France. In all cases, the tax exemption is limited to a maximum of 150,000 euros of net capital gain.
Capital Gains Tax is carried out in three stages
First stage
Definition of "Gross Gain" - the difference between the selling price and the purchase price.
Selling price - this is the price set by the seller (owner) of the property, as stated in the deed of sale. The seller has the opportunity to reduce it through documented expenses (commission to intermediaries, the cost of diagnostics, fees to architects for preliminary examination of construction rights, and other expenses).
Purchase price - this is the cost of acquiring the property, as stated in the purchase agreement. If the property is received for free, the purchase price will be the amount stated in the gift contract or inheritance declaration.
This amount is adjusted for the following elements:
- Acquisition expenses (expertise expenses, notary fees). Excluded are gift and inheritance taxes. Another option is to accept expenses equal to 7.5% (a pre-established percentage) of the purchase price.
- Expenses related to various works that may have been carried out during the entire period of property ownership (construction, reconstruction, expansion, renovation costs). They are composed of actual expenses actually incurred by the company and confirmed by receipts.
- If it was carried out more than five years after the purchase date, the owner (seller) is entitled to a fixed discount of 15% off the purchase price or a deduction of actual expenses if it is more advantageous.
Second stage
Definition of "Net Gain" - the result after applying the tax benefits for the duration of property ownership. When selling real estate that has been owned for more than 5 years, tax benefits for gross gain are applied. The latest amendments to tax benefits for property transfer came into effect on September 1, 2013.
Today, tax benefits are applied at a rate of 6% for each subsequent year, starting from the 6th year of ownership and up to the 21st year, and 4% for the 22nd year of ownership. It's important to note that only full years of ownership are taken into account. Thus, the gain in value of the property being sold is exempt from tax after 22 years of ownership. Property whose value has decreased over time is exempt from tax when sold.
Third stage
Calculation of the tax amount, applying the rate of 36.2% (19% and 17.2% social contributions). On February 26, 2015, the Court of the European Union in Luxembourg made a decision regarding the unified tax rate of 19% for both non-residents of France from European Union member states and non-residents (individuals and members of SCI) residing outside the EU/EEA.
Additional capital gain tax
|
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% |
Tax benefits for each year of ownership
The case of sale of Real Estate:
|
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% |
The case of sale of land for construction
|
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% |
Please note that it is important and essential to keep all invoices and other documents that confirm the expenses for construction and renovation work.
You can find the capital gains tax calculator here.
