Capital Gains Tax issues when moving to France

 More Information brought to you by FPS to help in your French Property Sale and Purchase

.Do you know someone who has moved to a house in France, but kept a home in the U.K.? And when you ask them which country they are living in, you may not get a definitive reply.  You might be spending a few months in France in the spring; then letting their property during the summer months (apart from that fortnight's holiday), then back to France for the peace and tranquility of autumn. But is this the fashionable life-style of the property owning cognoscenti? Or just the shrewd ordering of one's affairs to avoid being tax resident in France?

Formerly, to be tax resident in France, you had to have the intention of setting up home there or be resident there for more than 183 days in any calendar year. In practice, the authorities would rely on the seller to make a declaration as to whether he was resident or not. And of course the French property owner with homes in both countries. might cherry-pick the alternatives. If he was selling his converted maison de mâitre with a massive capital gain, he might declare that of course the house was his principal residence (thus avoiding any Capital Gains Tax liability).

Or, if the value of his assets in France and the U.K. were in excess of 720,000 euros, then he might declare that his tax residency was in the U.K., thus avoiding the annual taxe sur la grande fortune levied on the value of his world-wide personal estate. This tax is hugely unpopular amongst the middle classes in France because house price inflation has dragged them into this tax net. The shrewd owner of property in both France and the U.K. will know that as long as he keeps his U.K. tax residence (and the value of his French home remains below the threshold value) he will avoid this tax.

But as certain as death and taxes, the French authorities are finding ways around this leap-frogging over National borders. How? By clamping down on the Capital Gains Tax relief for principal residences.  Formerly, if a British house owner had vacant possession of his French property and he had paid the taxe d'habitationon the first of January, then the authorities would usually accept his declaration d'honneur that this was his principal residence. This has changed.

Now it is the notary and not the fisc who is charged with collecting Capital Gains Tax on the sale of the property. And it is the notary's job to make sure an owner claiming this relief has at some time been tax resident in France. A declaration of principal residency will only be accepted if the owner can prove he has been fiscally domiciled in France for two years at some time during the ownership. Which means the seller must give the notary a copy of his tax returns for at least two years. And of course as soon as he declares a tax return, the fisc can ask him about the value of his world wide estate. And if it exceeded 720,000 euros during the time of fiscal residence, he might get a demand for some taxe sur la grande fortune. 

The U.K. government has announced that C.G.T will now be levied at 18% which once again changes the mix. For U.K. owned property in France, the tax on the capital gain of your property is ludicrously low at 16%. (And this disappears altogether if you have owned your property for 15 years) but may be as much as 26% if you a French tax resident (because it includes the 10% social charges only paid by French residents). So clearly there is now a big advantage in remaining a British tax resident

So the property cognoscenti should take care, otherwise it may be a case of coup de fusil dans le pied.

Philip Winter-Taylor