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Tax relief on real estate sales in France: the latest on the capital gains regime

In August, we reported on the much-welcomed tax relief on real estate sales, which was immediately applied to any sale finalized after September 1, 2013. The changes were intended to offset the government’s wholesale revision of the capital gains tax laws in 2012, which had discouraged property owners from selling and thus significantly curbed the volume of sales. The new rules had a rapid effect on the market as sellers took advantage of the relief. Current schedule for capital gains tax and social charges on property sales in France The sale of a primary residence is exempt from any tax. Other real estate sales are subject to capital gains tax at 19% for French and EU residents, 33.33% for most non-EU residents. That rate is reduced by 6% for each year of ownership after the 5th year through the 21st year, and 4% after 22 years of ownership. So no capital gains tax is payable after 22 years of ownership. All sellers also pay 15.5% social charges on the sale of second homes or investment properties in France. The relief schedule for social charges runs over 30 years instead of 22. The relief is minimal at first and heavily weighted to the end: 72% of the relief is granted between years 23 and 30. Additional 25% reduction of the taxable gain For sales realized between September 1, 2013 and August 31, 2014, the new rules allow an exceptional 25% reduction of both the capital gains tax and the social charges payable by the seller. Another amendment? Not for now… A recently-proposed amendment to the regime would have entirely eliminated the reductions schedule from year 23 on for social charges. The most relief possible would thus have been the 28% reduction scheduled through year 21. In other words, after 22 years of ownership and beyond, sellers would pay social charges of 11.16% of the capital gain realized, regardless of how long they held the property. This amendment would have been the fourth change to the capital gains regime since the start of 2012. Commentators, including financial news source leblogpatrimoine, were up in arms, arguing that the uncertainty from the continued tweaking of the law would offset any positive bounce in sales volume that we’ve already seen in the last months. Ultimately, the government recently agreed not to put the amendment to the vote in the French parliament, and to maintain the rules as they have been since September 1st of this year. The saga will, of course, continue. From our own and our clients’ experience, we know that the French capital gains tax regime is a more frequently evolving landscape than in most other countries. So it’s hard to guess what the rules might be in 2 years, 5 years, or further down the line. Buyers considering a property purchase in Paris should look to realize their real estate transactions when the time is right for them, and not factor the current tax structure on sales as a guide to what will be in years to come. For sellers looking to exit the market, the substantial 25% reduction in the taxable capital gain will run until August 31, 2014. If they are looking to sell soon, realizing their sale in this window might not be a bad idea.   Related posts: Tax relief on real estate sales in France: proposed changes seek to boost market volume Real estate prices in Paris: a guided tour of the arrondissements European real estate trends: foreign investors target Paris Russian, Chinese, and Middle Eastern Buyers give the French prestige property market a boost France leads European real estate Paris Purchasing Power Up  

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