French Capital Gains Tax: the rules for individuals who have been fiscally domiciled in France

We have reported regularly on changes to the French capital gains tax (CGT) regime over the past two years.

In France, the capital gain on the sale of a primary residence is exempt from any tax. But the capital gain on the sale of a second home or investment property is liable to tax and social charges. We explain the current rules here.

The government has recently clarified aspects of the rules relating to properties sold by individuals who have formerly been fiscally domiciled in France.

Primary residences sold before departure from France

People who have been fiscally domiciled in France and then leave to become a tax resident elsewhere are not liable for CGT on their primary residence, provided that the sale is completed before their departure.

Primary residences sold after departure from France

If the property is not sold before departure from France, the sellers become liable for tax and social charges on any capital gain. But they benefit from additional tax relief of €150,000 per seller of the property, provided they fulfill the following conditions:

• They must be an individual, not a company.
• They must be a national of a European Union state or of a state that is party to the European Economic Area agreement and has signed a tax evasion/fraud prevention convention with France.
• They must have been fiscally domiciled in France for a consecutive period of at least two years at some point prior to the sale.
• The sale is finalized by December 31^st of the fifth year following the seller’s transfer of fiscal domicile outside France. Alternatively, there is no time limit, provided the seller has had free access to the property since the 1st January of the year preceding that of the sale.

These rules apply to capital gains realized on sales finalized since January 1^st 2014 and are restricted to one property per seller.

The good news is that the €150,000 applies per seller. A co-owning couple, regardless of marital status, will therefore benefit from a €300,000 reduction in the capital gain. Prior to the French government’s clarification, the rules were interpreted to apply per sale.

The relief is applied after other abatements have been taken into account. Sellers are entitled to tax relief according to the length of time they have owned the property. In addition, in order to stimulate the property market, in 2013 the government introduced an exceptional abatement of 25% of the capital gain on sales finalized between September 1^st 2013 and August 31^st 2014.

It clearly makes good sense to put your property on the market as soon as possible if you know you are leaving France. And, as always, professional legal advice is crucial.