New Capital Gains Tax Regime on French Real Estate

The new regime of capital gains tax on French real estate: what are the impacts for non-residents with a second home in France?

Second 2011 amended Finance Act dated 8 September 2011

The French Parliament voted last July the first part of the amended Finance Act for 2011 which introduced a major reform of wealth taxation. This law has now been completed by a second amended Finance Act for 2011 voted on 8 September 2011 (published on 19 September 2011).

This second part includes a reform on capital gains tax on real estate. These new provisions by postponing the exemption of capital gain tax to 30 years will certainly encourage individuals to sell their property before the deadline of 1st February 2012...

New regime of capital gains tax

The capital gains tax rate on disposal of French real estate by non-residents has not changed and is still of 19% for EU resident (and Iceland and Norway). A tax rate of 33.33% applies otherwise. Non-residents are exempted from French social contributions.

Under the previous regime, a fixed tax rebate of 10% applied on the gain after the 5th year of holding. Consequently, non-residents, who cannot enjoy the exemption for main residence for their second home in France, are exempted from capital gain tax after 15 years.

Under the new regime, the tax rebate of 10% has been waived and some new progressive rates have been introduced:

- 2% after the 5th year of holding

- 4% after the 17th year of holding

- 8% after the 24th year of holding

This means that a total exemption applies only after 30 years of holding.

For example, a gain on a property sold in June 2012 will only be exempted if the property has been held since at least 1 June 1982.

This table outlines the applicable tax rebate under the new regime:

Period of ownership	Applicable tax rebate
Under 6 years	0 %
Between 6 and 7 years	2%
Between 7 and 8 years	4%
Between 8 and 9 years	6%
Between 9 and 10 years	8%
Between 10 and 11 years	10%
Between 11 and 12 years	12%
Between 12 and 13 years	14%
Between 13 and 14 years	16%
Between 14 and 15 years	18%
Between 15 and 16 years	20%
Between 16 and 17 years	22%
Between 17 and 18 years	24%
Between 18 and 19 years	28%
Between 19 and 20 years	32%
Between 20 and 21 years	36%
Between 21 and 22 years	40%
Between 22 and 23 years	44%
Between 23 and 24 years	48%
Between 24 and 25 years	52%
Between 25 and 26 years	60%
Between 26 and 27 years	68%
Between 27 and 28 years	76%
Between 28 and 29 years	84%
Between 29 and 30 years	92%
More than 30 years	100%

 

Entry in force

The new regime of capital gain tax on real estate will come in force for any gains realized from 1st February 2012. However any contributions of French real estate to a company (such as SCI) will be subject to the new regime for any gains realized since 25 August 2011.

Please note that the exemption for main residence still applies. This means that non-resident purchasing a French property with the intention to become French tax resident in the future will still be able to enjoy this exemption if their French property is their main residence at the time of the disposal. Non-residents should take advice as soon as possible as other exemptions may apply...

This article is for general information only and is not intended to provide legal advice

For further information, please contact:

Caroline Cohen

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