A foot in Normandy, a foot in Brittany and only just across the Channel. Simply the best of both worlds!

HOLLANDE GOVERNMENT TAX PROPOSALS – JULY 2012

Written by Jennie Poate, Regional Manager, Siddalls France
Email northwest.office@siddalls.net or call 0688475303

Change of Capital Gains Tax rules    -  Plus-Value Immobilière

From 1st February 2012 – and how this might affect you

If you are thinking of selling, are selling or thinking of having some building works done then you will need to consult these tables to give you an idea of how much capital gains you may be liable for. Please note this information is only for guidance, you must take proper financial advice from a suitably qualified person. If you need help to find someone to give you this guidance we do have a list of professionals who will be able to help.

Years of Ownership

CGT abatement before 31/1/2012

CGT abatement after 01/02/2012

Net Tax for  Residents

Net Tax for  EU Residents

1  year

0.00%

0.00%

32.50%

19.00%

2 Years

0.00%

0.00%

32.50%

19.00%

3 Years

0.00%

0.00%

32.50%

19.00%

4 Years

0.00%

0.00%

32.50%

19.00%

5 Years

0.00%

0.00%

32.50%

19.00%

6 Years

10.00%

2.00%

31.85%

18.62%

7 Years

20.00%

4.00%

31.20%

18.24%

8 Years

30.00%

6.00%

30.55%

17.86%

9 Years

40.00%

8.00%

29.90%

17.48%

10 Years

50.00%

10.00%

29.25%

17.10%

11 Years

60.00%

12.00%

28.60%

16.72%

12 Years

70.00%

14.00%

27.95%

16.34%

13 Years

80.00%

16.00%

27.30%

15.96%

14 Years

90.00%

18.00%

26.65%

15.58%

15 Years

100.00%

20.00%

26.00%

15.20%

16 Years

100.00%

22.00%

25.35%

14.82%

17 Years

100.00%

24.00%

24.70%

14.44%

18 Years

100.00%

28.00%

23.40%

13.68%

19 Years

100.00%

32.00%

22.10%

12.92%

20 Years

100.00%

36.00%

20.80%

12.16%

21 Years

100.00%

40.00%

19.50%

11.40%

22 Years

100.00%

44.00%

18.20%

10.64%

23 Years

100.00%

48.00%

16.90%

9.88%

24 Years

100.00%

52.00%

15.60%

9.12%

25 Years

100.00%

60.00%

13.00%

7.60%

26 Years

100.00%

68.00%

10.40%

6.08%

27 Years

100.00%

76.00%

7.80%

4.56%

28 Years

100.00%

84.00%

5.20%

3.04%

29 Years

100.00%

92.00%

2.60%

1.52%

30 + Years

100.00%

100.00%

0.00%

0.00%

The bottom line is that capital gains exemption now starts at 30 years, not 15 years as before, and the rate has gone up too – though for EU residents (eg. English, Dutch) you will pay less than if you are a French resident. Please read on below the tables for more details.

How is CGT tax composed?

The tax rate for vendors of property is broken down into 2 parts:

·         Capital Gains Tax

and

·         Social Charges

The social charges element of the tax only applies to French tax residents.

The CGT rates from 1st February are:

Non residents (members of the EU):             19% Capital Gains Tax CGT

Residents of France :                                     19% Capital Gains Tax CGT + 13.5% Social Charges = 32.5%

Non-EU residents (eg Jersey):                       To be confirmed

How you can reduce your CGT liability

As before if you can provide invoices relating to building works then these may be used to further reduce the CGT liability. Please note that only invoices which include the labour will be allowable. Most notaires will not allow overseas companies’ invoices.

Example: if you buy all your materials at Gedimat, or other builders’ merchants and do the work yourself, and spend say 30,000€ on materials, not one euro of this total can be used to reduce your capital gains liability. Even if you are capable of doing the works it may make more sense to engage builders for some of the work. It is for this reason that we encourage our clients to work out carefully before they start works whether it is more tax efficient to do the work themselves or to bring in a full registered French company who can supply an invoice on completion of works to include the labour.

An aside regarding « assurance décennale »

Another very important consideration (though completely irrelevant to the CGT discussion)  for using a French registered company is that in France for all structural works a 10 year guarantee (assurance décennale) will be provided, if not, you are personally liable for the guarantee for the whole of the 10 year period following the works. So, if you sell 6 years after works you are liable personally for these guarantees for a further 4 years.

On page 3 we enclose a chart to show how, if you bought a house 17 years ago, the change of rule might affect you. In fact the good news is that it might not even affect you if you engaged builders for your building works as these bills can be used to reduce your capital gains tax liability.

Again, just to remind you, in all situations regarding money and tax you should take professional advice as early as possible – this could save you a fortune in the long run! We will be able to help you find an appropriate advisor should you need this. This summary should be treated as just that as the rules are obviously far more complex than we have been able to illustrate and “one size does not fit all”.

PLEASE TAKE PROFESSIONAL ADVICE.

Capital Gains Tax in action for a non-resident with a holiday home purchased for 50,000€ in November 1994

Nom-resident example

Sale before 01/02/2012
No building  works or  uninvoiced building works

Sale after 1/02/2012
No building works or uninvoiced building works

Sale before 01/02/2012
With fully invoiced building  works

Sale after 1/02/2012
With full invoiced building works

Purchase price in November 1994

50,000 €

50,000 €

50,000 €

50,000 €

Sale Price in December 2011, 17 years

120,000 €

 

120,000 €

 

Sale Price in March 2012, 17 years

 

120,000 €

 

120,000 €

Taxable profit

70,000 €

70,000 €

70,000 €

70,000 €

 

 

 

 

Exemption rate

100%

24%

100%

24%

 

 

 

 

Capital Gains tax to pay

0 €

16,800 €

 

0 €

16,800 €

 

 

 

 

Buildings invoices using labour

0 €

0 €

40,000 €

40,000 €

 

 

 

 

Amount left after  tax & invoiced building works

70,000 €

53,200 €

30,000 €

70,000 €

 

 

 

 

Invoices not including labour

40,000 €

40,000 €

 

 

 

 

 

 

What is left after purchase, sale, CGT and building works

30,000 €

13,200 €

30,000 €

70,000 €

This chart aims to show that although capital gains rates may have gone up, and the years of exemption may have changed, this may not adversely affect you as much as you thought if you have invoices for building works available to use against capital gains liability.

Disclaimer: PWT has produces these notes as guidelines only.  There may be errors within the document although it has been double checked and we would therefore advise you ALWAYS to check your own personal circumstances with a suitably qualified person to give such advice in France. We will not be held liable for any errors within this document. We can give the names of such professionals on request.