Significant changes to French property capital gains tax rule
Various amendments to the Capital Gains Tax (CGT) laws in France were adopted by the French Assemblée Nationale on September 7, 2011 and October 12, 2011.
Situation prior to the amendments:
Prior to these series of amendment, second home owners benefitted from a 10% annual reduction on French CGT from the sixth year of ownership of the property on and full relief after 15 years of ownership.
Currently, residents of France are subject to fixed rates of CGT of 19% as well as paying social charges. Non residents from outside the EU pay 33,33% with no social charges. Those non residents which come from within the EU pay tax on French property gains at 19% and do not pay social charges.
The new rule:
Bad news for French residents with second homes in France
The new rules decrease the annual reduction of 10% per year from the sixth year to a new scale of relief according to the following schedule:
- 2% for every year of ownership as from the 6th year
- 4% for every year of ownership as from the 17th year,
- 8% for every year of ownership as from the 24th year,
- Full exemption for individuals having owned their second homes for 30 years or more.
The new regime is set to apply to property sales from February 1, 2012.
These significant changes will certainly trigger a peak in the sale activity of second homes prior to the implementation deadline.
Good news for non resident real estate owners in France
However, on October 12, 2011 the French Parliament passed a subsequent amendment which softens the impact of initial changes.
The latest amendment provides that the sale of second homes will be exempt from CGT when the seller does not already own a principal residence in France. However, as a condition precedent to benefit from such exemption, the seller must have owned the house for at least five years and cannot have owned a principal residence in France for at least two years.
The amendment is primarily aimed at providing relief to French expats but could also benefit foreign owners of second French houses.
Parliament indicated that this latest amendment will also come into force on February 1, 2012 to coincide with other property tax reforms.
