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French Capital Gains tax on sale – how is it affected by Brexit for UK residents?
The end of the Brexit transition period on 31 December 2020 marked some significant changes to French Capital Gains tax (“CGT”) for UK resident sellers, mainly to their detriment.
Under French law, a principle exists that where the sale of a French immoveable asset generates a gain for the seller, then French CGT will be payable in France, even if the sellers are not tax domiciled or resident there.
Before Brexit, UK residents still benefited from some advantages as residents of the EU. Indeed, if a seller is resident in the EU but not in France, then there is a possibility to be exempted from part of the social charges element of French CGT. Now that the UK is no longer part of the EU, sellers who are resident in the UK can no longer benefit from this exemption, significantly pushing up the French CGT rate applicable for the social charges element from 7.5% to 17.2%.
A second and perhaps more “hidden” change is that UK resident sellers no longer benefit from the automatic exemption to instruct a French accredited tax representative, which applies to sellers who are resident in a country part of the EU or the EEA.
From now on, and for every sale of property in France, the default position is that such a representative must be instructed to draft and submit the French CGT return – a task which was previously dealt with by the Notaire at no extra cost. This can sometimes represent a marked difference in the net sale price received by the seller, as a tax representative will charge a fee which, on average, is around 1% of the sale price. Importantly, this is the case even if no French CGT is due. Accredited tax representatives are also less “lenient” when it comes to considering the costs of building work being offset to calculate the taxable net gain, and they will carefully review your supporting documentation before giving the green light and submitting the return.
Thankfully, UK resident sellers can still benefit from some exemptions to this obligation, but they are quite limited in their scope:
- If the sale price is under €150,000 then the requirement to instruct an accredited tax representative is waived
- Furthermore, if the sale price is over €150,000 but the property is sold by several parties whose individual shares are less than €150,000 each, the exemption still applies.
- The above is not applicable for married couples and civil partners who are selling together, even if they each own a half share worth individually less than €150,000. This is because a married couple or partners in a civil partnership will be considered as a single household.
Although the sale price is considered net of the estate agency’s commission when calculating the French CGT due, this will be taken into account to determine whether or not the seller qualifies for the exemption. If, for example, the total price paid by the buyer is €155,000 (breaking down into the actual sale price for the property of €145,000 and a commission of €10,000) the seller will not be able to benefit from the exemption. This is important when considering the marketing price which includes the estate agency commission.
However, if the sale price includes furniture, then the value is considered net of the furniture price, but only provided that acceptable supporting documentation is presented to the French tax authorities (such as invoices or a formal inventory). If we take the same example as above of a total sale price of €155,000 (breaking down into a value of €145,000 for the property and €10,000 for the furniture) the seller would be able to benefit from the tax representative exemption, but only if the supporting documentation is available.
Another standard exemption to the tax representative requirement applies if the sellers have owned the property for over 30 years. This length of time is not set in stone, but is aligned with the current timescale under which a property owner becomes fully exonerated of French CGT, both for the income tax element – which currently tapper off fully after 22 years – and the social charges element which tappers off fully after 30 years.
One final complex exemption exists when a UK resident seller sells their former main residence in France, but two conditions must be fulfilled:
- The main residence must be sold before 31 December of the year following the year where the seller moved their tax residence outside of France (i.e. if you move back to the UK in 2021 this condition will be fulfilled until 31 December 2022)
- The property was not made available to a third party between the loss of French residence and the sale, either for free or against payment
A seller can benefit from this exemption provided that their new tax residence is in a country which is part of the EU, or a country which has signed a tax assistance convention with French. The BOFIP (French tax bulletin) confirms that UK resident sellers can still benefit from this exemption despite Brexit, due to the nature of the post-Brexit agreements signed between France and the UK. This will not only exonerate a UK resident seller from the obligation to instruct an accredited tax representative but will also exonerate them from being liable for French CGT in all circumstances (i.e. even if a significant gain is made). This is certainly something to consider if you are planning to sell your property in France and return to the UK.