Capital Gains Tax in France

Capital Gains Tax in France or  impôt sur les plus-values as it is known is a tax payable on the sale of real estate property, land, buildings, shares or other personal property. As with other types of tax, french capital gains tax can be subject to certain exemptions, deductions and allowances that maybe available but navigating this area and knowing what the best options are for you and your financial situation can be confusing. Depending on the type of asset (be it moveable or immovable assets), the rules, rates and allowances will differ for the gains made.

Understanding capital gains tax in France?

Capital gains tax in France is a tax levied on the profit from the sale of certain assets, such as real estate and investments. The basic rate of capital gains tax on real estate property in France is 19%.

Depending on the amount of gains made (the difference between the original purchase price and the final sale price), there may also be additional surcharges or social charges but there may also be various exemptions and tax relief that you could benefit from. The same will be applicable for other types of assets, such as shares.

Let us take a closer look at the rules and rates surrounding some different types of assets and how capital gains tax applies to them.

Capital Gains Tax on Property

Capital Gains Tax (CGT) on property in France applies when selling real estate property. However, there are key exemptions and allowances:

1. Exemption for Primary Residences
   A French principal private residence is generally exempt from capital gains tax. If the property is your main home, you do not need to pay CGT when selling.
2. Exemption for Former Second Homes
   If a second home becomes your primary residence, it may be exempt from CGT after completing at least one tax return demonstrating fiscal residence in France (some notaires require two years).
3. Tax on Non-Primary Residences
   For non-primary residences, capital gains tax is applied at a rate of 19%, plus 17.2% social charges (or 7.5% under certain conditions).
4. Tax Treaty Between the UK and France
   The tax treaty between the UK and France covers capital gains tax on property. France has the right to tax the sale of UK property by French residents, with credit given for tax paid in the UK.
5. Exemptions Based on Ownership Duration
   There are allowances that reduce the tax burden over time. After 22 years of ownership, you are exempt from CGT, and after 30 years, you are exempt from social charges.
6. Offsetting Costs and Allowances
   You may be able to offset certain costs against capital gains tax or use a fixed allowance if you meet the criteria.

Please note that Kentingtons offers advice on capital gains tax, only as part of overall comprehensive financial planning and not in isolation.

French Capital Gains Tax on Shares / Managed Portfolios / Funds etc.

Capital gains from the sale of shares, equities, and other securities are subject to a flat tax rate of 30% in France. This rate includes both income tax and social charges. This simplified taxation regime is designed to make the process straightforward for investors, as it applies uniformly to various types of financial assets, including shares, bonds, and other securities.

No amount may be earned tax free on the sale of shares in France, so holding them directly is less desirable than by other means.

For UK nationals it is important to note that ISAs are not exempt from capital gains tax, thus they will be assessed as whatever is inside them, so either cash savings, shares etc. with both Capital Gains Tax and social charges payable. We have experienced serious reporting problems with this, with ISA providers unwilling to provide tax information for an investment that is ‘tax free’.

The treatment of shares has become complicated with various options for taxation depending on how long they have been held and the level of gains dictating which tax option suits you best. You may select a flat tax (PFU – Prélèvement Forfaitaire Unique) with no allowances, or you may use your marginal rate and apply allowances, thus requiring complex calculations to ascertain which results in the lowest bill. This is hardly favourable, leaving you to learn those complex calculations, chance it on your best guess, or pay an accountant, thus potentially losing any advantage.

How to Avoid Paying Capital Gains Tax in France

In certain situations, it may be possible to reduce the amount of capital gains tax that you need to pay, or even avoid paying altogether.

For example, suppose the real estate property you are selling in France is your main place of residence. In that case, you do not have to pay capital gains or social charges against its sale. Also, if the property sale is under €15,000, then again, no capital gains tax is payable.

Another situation where you are not liable to pay capital gains tax, would be when you have owned a second home for more than 22 years. You do not need to pay social charges for properties that have been owned for more than 30 years.

As always, it is important to consult with a specialist international tax advisor when considering such matters to ensure you remain compliant with the latest financial rules and regulations.

What are social charges?

Social charges have been referenced several times throughout this guide, but what are social charges and how do they apply to you?

Social charges are essentially just another form of taxation. Indeed, the double tax treaty between France and the United Kingdom begins by defining social charges as “tax”.

France has a comprehensive social security system. That system is funded by social security contributions as well as social charges, which are a percentage of people’s taxable income. However, other forms of income such as that from pensions, rental income, interest from savings, investments or capital gains tax are also liable to social charges.

These social charges are taxed at different rates depending on the type of income source that it relates to. As of 2022, the tax rates are currently set to:

• CSG (Contribution sociale généralisée) – 9.2%/0%
• CRDS (Contribution pour le remboursement de la dette sociale) – 0.5%/0%
• Prélèvement de Solidarité – 7.5%

How much social charges you are liable to pay will depend on your own particular situation, including whether you are a resident in France or not, as you may be liable to pay a flat rate of 17.2% or a minimum tax rate of 7.5%.

Again, it is advisable to consult with a specialist tax and financial expert for advice to unsure if you are paying the right amount of social charges and tax based on your personal situation.

How Can Kentingtons Help?

The good news is that, as a leading tax and financial consultant in France, Kentingtons’ is able to provide a service to aid our French resident clients in making use of suitable investment structures and only recommend those that are completely exempt from the payment of Capital Gains Tax (clearly the smart option is not to bother with this tax at all, if you do not legally need to).

If you would like to know more about how you can simply eliminate french Capital Gains Tax from your savings, please do get in touch.

The information on this page is intended only as an introduction only and is not designed to offer solutions or advice. Kentingtons can accept no responsibility whatsoever for losses incurred by acting on the information on this page.