French capital gain taxes: How does it work?
The capital gain is the difference between the purchase price and the selling price, and when the amount of the result is positive. Also, registration fees actually paid during the purchase or a flat-rate of 7.5% of the purchase price are accounted in. Moreover, It is possible to deduct the session costs and the VAT (for new build properties).
Real estate capital gain tax rate
The capital gain is taxed under income tax at the current flat rate of 19% and for social security contributions at the current rate of 17.2%. That makes 36,2% in total. This capital gain tax can be deducted after a period of time.
Allowance for a period of detention
The deduction rate changes regarding the duration of property ownership. The basis for income tax and social security contributions vary in time.
The deduction stacks per year so you get 6% deduction for year 6, year 7, year 8, year 9, etc…
Purchasing as an individual
|Duration of detention
|Reduction rate applicable each year of ownership for income tax
|Reduction rate applicable each year of ownership for social security contributions
Less than 6 years
From 6 to 21 year
After 22 years
After 30 years
For example, if you decide to sell your property after 9 years and make capital gains with it, you will be taxed as follow:
Stacked deduction for income tax = 6% x 4 years (year 6, 7, 8 and 9) = 24% which means the actual income tax is: 19% * 0.76 = 14.44 % during the ninth year of ownership.
Stacked deduction for Social security contributions = 1.65% x 4 years = 6.6% which means the actual Social security contributions are: 17.2% * 0.934 = 16.06 % during the ninth year of ownership.
You will have to pay 14.44% for the income tax and 16.06% in social security contributions.
Purchasing through a LLC (ex: SARL de famille)
Purchasing through the SARL company vehicle has many advantages on the tax side. You do not have to pay any social security contributions and your property will be totally exempted from taxes after 15 years! For more information, read our article : Should you purchase your French property through a SARL (LLC) ?
Purchasing through a SCI
Purchasing through a SCI has also some great advantages. The capital gain tax is the same for SCI and individual purchase. Though it doesn’t look interesting at the first look, the tax exemption starts at the creation of the SCI rather than the entry of the property in its capital. That means you can get tax exempt quicker than for an individual purchase in the case you purchase many properties through the same SCI.
Example: If you purchase your first property at the creation of the SCI, and a second property 15 years later, it will take 30 years for the first residence to be exempted from taxes but 15 years only for the second one. For more information, make sure to have a look at our article: Why would you create an SCI for your real estate purchase in France?
Real estate capital gains exempted from tax
- The sale of the main residence and its immediate and necessary outbuildings sold simultaneously or almost simultaneously;
- The sale of an elevation right under certain conditions (example: adding floors to a building).
- The sale of housing located in France by non-resident taxpayers under certain conditions. As a Uk resident you can use the calculator provided by HMRC to determine your liability.
- Capital gains realized on the sale of properties for a price less than or equal to 15,000 euros for a single person, 30,000 euros for a couple
- Capital gains realized on the sale of a property held for more than 30 years.
- The sale of a property in the event of its expropriation under conditions of re-use.
- Sale by pensioners or invalids of modest condition
The taxpayer who does not own his main residence can benefit from an exemption from capital gains realized on the first sale of a home under certain conditions:
- The seller has not been the owner of his principal residence, directly or through an intermediary, during the four years preceding the transfer
We cannot advise on tax matters as we are not qualified to. This is just for information. Should you want more information and advice, we would be happy to introduce you to tax specialists and accountants.