Capital gains tax increased on second home sales in France
Within weeks of proposing a temporary 20% reduction in capital gains tax on second home sales in France the government has reversed course, increasing the tax on large gains instead. Of course tax rates on long term capital gains are likely to change before today’s buyers need ever worry about them, but for the moment non-EU owners of second homes could be on the hook for taxes of over 50% on capital gains if they sell.
An article in French Property.com outlines how French government policies on property taxation, and capital gains tax in particular, have been changing with dizzying pace. Two months ago it was reported that the government was proposing to give a boost to the housing market with a temporary reduction of 20% in the level of capital gains tax on the sale of second homes and rental properties. Before the ink was even dry on this proposal, the Loi de Finances rectificative 2012 introduced a supplementary tax (surtaxe) on large gains on the sale of second homes.
The primary residence will continue to be entirely exempt from capital gains tax. Neither will the supplementary tax apply to the sale of building land, although such sales are to become subject to a new, separate set of rules.
Sale contracts signed in 2012, but not completed until 2013, will be affected by this measure, effectively ensnaring those who were waiting hopefully for 2013 to take advantage of the proposed 20% temporary reduction in the tax rate. The only sales to escape the new tax are those contracts signed and registered with the tax department prior to December 7th, 2012.
There will be five rates of taxation, depending on the size of the gain. The following table obtained from our notaire shows a breakdown of the thresholds at which the supplementary tax will be triggered and the rates that will apply.
Scale of the supplementary tax (in Euros)
Taxable capital gain (TCG)
|From €50,001 to €60,000||2% of TCG – (60,000 – TCG) x 1/20|
|From € 60,001 to € 100,000||2% of TCG|
|From € 100,001 to € 110,000||3% of TCG – (110,000 – TCG) x 1/10|
|From € 110,001 to € 150,000||3% of TCG|
|From € 150,001 to € 160,000||4% of TCG – (160,000 – TCG) x 15/100|
|From € 160,001 to € 200,000||4% of TCG|
|From € 200,001 to € 210,000||5% of TCG – (210 000 – TCG) x 20/100|
|From € 210,001 to € 250,000||5% of TCG|
|From € 250,001 to € 260,000||6% of TCG – (260 000 – TCG) x 25/100|
|Above € 260,000||6% of TCG|
- TCG = Taxable capital gain
The surtaxe will be imposed in addition to the existing capital gains tax of 19% CGT plus 15.5% social charges for the European Union tax residents. For a US tax resident the regular capital gains tax rate is 33,33 % CGT and 15,5% for the social contributions or 48.83%.
For a gain between €50,000 and €100,000 the total rate of tax (CGT and social charges) will be 50.83% for non-EU residents. These rates will apply after deduction of the allowance for duration of ownership. This allowance provides a sliding scale of relief of 2% per year against capital gains tax from the sixth year of ownership, with total exemption after thirty years of ownership. (The full rate applies for the first five years. The applicable rate is then reduced by 2% per year between the 6th and 17th year of ownership; 4% per year between the 18th and 24th year; and finally 8% annually after 24 years. Property owned for 30+ years is fully exempt from capital gains tax in France.)
It remains unclear whether the supplementary tax will be applied on a fractional basis, so that each level of gain is taxed at a different rate, or whether the whole of the gain will be taxed at a single rate. The indications are that a single rate will apply for the whole of the gain, but we will need to await publication of the detailed regulations for confirmation as to whether this will be the case.