French Capital Gains: Tax update

Contrary to what had been announced during the presidential campaign, capital gains will not now be subject to income tax in 2013. However, the government wants to change the taxation on property and land in order to improve the market flow. These measures will be presented on Friday within the context of the Finance Law 2013.

Taxation of Land:

From January 1st 2013, the government predicts a freeze in the taper relief capital gains from the sale of a land to build. From this moment, the owners will not lose the previously acquired relief. For instance a land held for more than 30 years will remain exempt. However, keeping land for a long period after this date will no longer result in a tax decrease via taper relief.

Currently, capital gains tax remains at a rate of 19% (34, 5% with social contributions) for sales of land. However, this system will end on January 1st 2015 when capital gains from land sales will be taxed using the income tax scales to which social contributions are added. Therefore, this tax system may be less favorable for well-off sellers who may be in the 75% tax bracket and may push a large number of owners to sell their properties within the next two years, according to the government.


Taxation of residential property (excluding main properties):

From  January 1st 2013, taxes for capital gains on second homes and investment properties will be reduced. The government will set up a reduction of 20% for the coming year. “This exceptional measure will be maintained for one year, to encourage owners sell their property”, Minister of Housing Cécile Duflot confirmed.

Just reminder that the capital gains (excluding main properties) are taxed at 19% during the first five years. After adding to the social security contributions of 15.5% (which may not apply to non-French residents), the tax rate reaches 34.5%.

Currently, individuals receive a discount of 2% per year between the sixth and the seventeenth year of ownership, followed by 4% per year after the seventeenth year, and finally 8% per annum after twenty-four years which lead to a total exemption after 30 years.

Therefore in 2013, the 20% reduction will be added to this exceptionally scale. For instance, an owner selling his second home after six years of ownership benefit from a reduction of 22% (20% + 2%). If the sale takes place in the seventh year of detention, the tax rebate will reach 24% (20 + 2 + 2 = 24). Additionally, people holding a property for at least 28 years will be exempted.

Many see this reduction of 20% as a stalling ploy to cover the fact that the Socialist Government do not really have a workable plan post Sarkozy. On the other hand it may breathe life into the French property market which has seen a large fall in the number of completed transactions. On a positive note the fall in the number of mortgage transactions has led to a dramatic fall in French interest rates, so there has never been a better time to be seeking French property finance to a property in France.

The fact of the matter is that the French seem to change their capital gains taxes regularly so non-resident buyers of French property need not worry too much as inevitably a new regime will be along soon.

Read the original article in French here