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Money Matters and Legal / Your Money

Big capital gains tax changes in store for second home owners in France

Saint Sulpice

In France, no capital gains tax is paid on the sale of a primary residence. However for second homeowners big changes are looming.

For all secondary residence or investment properties sold after February 1, 2012, the schedule for reductions in capital gains tax for owners who have held property for a certain number of years will drastically change. Currently, the tax is reduced 10% per year for ownership between 5 and 15 years, with no capital gains tax owing after a property has been held for 15 years.

The new schedule will be:

  • No allowance for the first five years of ownership.
  • Between six and seventeen years of ownership: 2% allowance per year.
  • Between eighteen and twenty-four years of ownership: 4% allowance per year.
  • Between twenty-five and thirty years of ownership: 8% allowance per year.

What this essentially means is that at the end of 15 years ownership, instead of 100% exemption, under the new rules the allowance is 20%.  Property will now need to be held for 30 years to be exempt from capital gains taxes.

The financial impact can be significant. Currently, capital gains rates are as follows:

  • Non-EU residents: 33.33%
  • EU residents: 19%
  • French residents: 32.5%

The February 1st implementation date means that the deed of sale – the acte authentique – would need to be signed by January 31st. in order for a property to be grandfathered under the previous capital gains tax rates. This means that the purchase contract would need to be signed by November 30th at the latest, since it normally takes at least two to three months to complete a purchase agreement.

For more information on the capital gains situation and exemptions that may be available:

http://www.french-property.com/guides/france/finance-taxation/taxation/capital-gains-tax/#iii

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