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Ask Miranda: Capital gains tax for non-resident second home owners in France – what’s the latest?
Question: A client in process of buying a place in Paris just asked us to update him on the current status of capital gains tax in France. Miranda says preparation can be key to minimizing tax.
Regarding capital gains: the current taxation for non-EU residents is 33.33% in capital gains, plus 15.5% social charges on the gain recognized at the time of sale. There is a reduction schedule on capital gains tax of 30 years, whereby the tax decreases each year by an increasing percentage until, at 30 years, no capital gains tax is payable.
2012 saw significant changes in capital gains tax on secondary residences in France. The first change, in February this year, lengthened the reduction schedule from 15 years of ownership to 30 years. The second change, in August, added social charges to the amount of capital gains paid by non-French residents, where previously only French residents were require to pay that amount upon sale.
I mention these significant recent changes to highlight the fact that the law evolves over the years, so it is difficult to predict today what the tax structure will look like at the time you want to sell: a non-EU resident who bought their apartment 16 years ago would have paid no capital gains at all on the sale if they closed in January 2012, but would pay just under 40% capital gains now.
The extraordinary changes of 2012 are already being tempered. In 2013, there is a 20% reduction in capital gains proposed for all sales completed in that year (update January 2013: this measure was not enacted, instead an additional surtaxe was levied on large capital gains). What’s more, there is already talk of reducing the 30 years down to 24 years, the schedule that was in place some 20 years ago. A subsequent, less liberal administration will likely revisit the capital gains issue more completely in the future.
From a planning perspective, what’s important is to keep your records in order so that you can maximize your gain upon sale. Standard deductions upon sale include
* notaire fees, including stamp duties, paid upon purchase
* fees paid to a licensed French real estate agency
* after 5 years of ownership, an automatic 15% of the value of the property added to the basis for calculating the gain. If qualified improvements to the property exceed this amount and are properly documented, these costs replace that 15% up to the amount actual spent on improvements.
As an owner, then, it’s important to keep proper records of any renovation/improvements that you make, to ensure you receive credit for these upon sale. In addition, when you do sell, you can itemize any furnishings you leave for the new buyer in the purchase price – outfitted kitchen, for example – and this amount will not be taxed at the time of sale.
Check out some current homes for sale in Paris or read more articles on capital gains tax below:
Should you wait until 2013 for reduced capital gains tax?
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Contact Paris Property Group to learn more about buying or selling property in Paris.
