Taxation on real estate capital gains in France

When you sell a property, whether it is a house, an apartment or land, you realize, most often, what is called a real estate capital gain. This capital gain may be exempt from tax (main residence) or taxed at 36.2% (sale of a secondary residence held for less than thirty years).

Capital gains on real estate

Most often, you sell your property at a higher price than you bought it. The capital gain simply represents the difference between the sale price and the purchase price, it is the gain made on resale.

It can therefore be high, even very high. Also, it is subject to corrections to reduce the amount to calculate the taxable capital gain. Because this capital gain will most often be taxed, except in the case of exemption, you will want to calculate your taxable capital gain to determine the amount of tax to be paid. But, remember, If you sell your main residence, you pay no capital gains tax.

Private sellers are taxable: yourself, your spouse or any person dependent on you and by certain legal persons such as real estate companies (SCI) who are subject to income tax. Any seller living in France is taxed under capital gains, regardless of the location of the property (in France or abroad), except for potential international conventions. Sellers living in metropolitan areas and overseas are therefore concerned, excluding overseas territories.

In order to be taxed on your capital gains, these criteria must be met:

– It must be a transfer (sale or exchange) and not free of charge (succession or donation)

– The sale must relate to a property or real estate rights (for example: your home or your second home) or to securities of real estate companies (SCI), it could even relate to land to be built or not built

– The capital gain must equal more than 0€

– And obviously, the sale is not subject to an exemption

Exemptions

The main case of exemption from taxation concerns the transfer of the principal residence. Whatever the nature of the property sold (apartment, house, chalet, etc.), the sale of a principal residence is exempt from any capital gains tax. It is sufficient that the property sold constitutes the main residence of the seller on the day of the transfer to be exempt. The exemption also applies to the immediate outbuildings of the main residence, provided that they are transferred at the same time as the latter.

In the case that the seller moves, the accommodation for sale is no longer considered the main residence, by definition: there is therefore a risk of losing the right to exemption. However, the tax authorities admit the benefit of the exemption once the accommodation has been the main residence until it is put up for sale, if the sale takes place within the normal time limits for the sale. In a normal economic context, a period of one year constitutes, in principle, the maximum period. However, the assessment of the “normal” sales period is a matter of fact that the tax authorities assess according to all the circumstances of the sale, in particular according to the local conditions of the real estate market, the asking price, the particular characteristics of the property and the steps taken by the seller for the sale of his property (advertisements in the press, steps with real estate agencies, etc.).

Dates considered when being taxed

The longer the property has been held, the lower the tax. Each year of ownership reduces the taxation on the capital gains:

• After 22 years the property is able to be deducted from income tax
• After 30 years the property becomes exempt from any tax on the capital gains

Whether twenty-two years or thirty years, the period is calculated from date to date; fractions of years are not taken into account. The date used is the date of the final deed of sale (for buildings acquired that are completed or in the future state of completion), or that of a donation or property received by inheritance

Note that for housing that the seller has built, the date considered is the date of the start of the work, certified by the date of the declaration of the start of the construction site.

Selling a non-principal residence

For those who do not own their main residence, there is a case of exemption from capital gains tax on the occasion of the sale of a secondary residence (whether this accommodation is rented out, reserved for use of its owner or vacant), without waiting for the thirty-year holding period. To benefit from this exemption, the following three conditions must be met:

The property must be the first sale of a non-pricipal residence since February 1, 2012

The seller must not have owned their main residence in the four years leading up to the sale

The seller must reinvest the sale price, in whole or in part, within twenty-four months of the sale, to buy the principal residence. The exemption applies to the part of the price that is reinvested

Exceptions reserved for Retirees or Disabled Adults

Elderly people residing in retirement homes and disabled adults housed in foster homes who sell within less than two years after leaving the accommodation they lived in before entering these establishments benefit from an exemption from capital gain on the sale.

When the property was their main residence, it must not have been occupied since their departure except by a member of their tax household or their partner who shared the accommodation with them. The accommodation must not be rented or lent, even occasionally. Only sellers meeting the following two resource conditions are concerned:

– Their income tax (that of the year preceding the sale, i.e. 2020 for a sale in 2022) must not exceed 26,149 € for the first part of the family quotient plus 6,109 € for the first half-share and 4,810 € for each additional half-share

– They must not be submitted to the IFI for the year preceding that of the sale

If these conditions are met, the person going to a retirement home or foster home can therefore wait before deciding to sell their principal residence. As long as the sale takes place within two years of her departure, they are exempt from capital gains tax. This gives them time to decide on the sale. Note that if the sale occurs in the first year, the person can benefit from the exemption for principal residence. The tax authorities tolerate a period of one year between leaving their main residence and selling it, provided that the property was for sale when its occupant left it, and that it had not found a taker since.

Holders of a retirement pension or the mobility inclusion card stating that they are on disability can also be exempt from capital gains when they sell a property, even if it is not their former home. But in this case, to benefit from the exemption, the resource ceilings to be respected are stricter: for a sale carried out in 2022, their  income tax must not exceed 11,120€ for the first part of the family quotient, and 2,969€ for each additional half share of their 2020 income. In addition, they must not be liable for real estate wealth tax the year preceding the sale.

Exemptions concerning sale prices 15,000€ or less

This exemption therefore applies to low value properties. It can be a cellar or a parking lot for example. Note that if the property sold is held by a married couple, the threshold of 15,000€ is assessed according to the share held by each of the spouses, including in the event of marriage under a régime de la communauté.

Exemption concerning an expropriation

When the properties taken from its owner for public use or benefit, the capital gain is totally exempt, under two conditions:

– Declaration of public utility. Expropriation is carried out following a declaration of public utility without taking into account the form of the transfer (amicable agreement or expropriation order). Voluntary transfers to local authorities are therefore excluded;

– Reinvestment of indemnity by acquisition. The expropriated person proceeds to the full reinvestment of the indemnity by the acquisition, construction, reconstruction or extension of one or more real estate assets within a period of one year from the date of payment of the indemnity.

Capital gains realized on the occasion of an amicable acquisition by the municipality or the State of a property exposed to a major natural risk (avalanche, torrential floods, etc.) also benefit from the exemption under the same conditions. 

Exemptions for non-residents

Since January 1, 2019, people who have their tax domicile in France and transfer it outside France can benefit from a total exemption of capital gains on the sale of their former principal residence if:

– The transfer of residence takes place to a Member State of the European Union or to a State or territory that has concluded an administrative assistance agreement with France with a view to combating tax fraud and tax evasion and an assistance agreement mutual fund for tax collection. The new country of residence must not be a tax haven

– The sale takes place no later than December 31 of the year following that of the transfer by the seller of his tax domicile outside France

– The accommodation has not been rented or lent between the time the seller left France and the sale

If you do not meet these conditions, but you are a national of a State of the European Economic Area, you can benefit from a partial capital gains exemption if you have been continuously domiciled in France for tax purposes for two years, at least at any time before the sale, provided that the sale takes place:

– no later than December 31 of the tenth year following that of the transfer to a tax domicile outside France

– without condition of delay if you have the free disposal of your accommodation (that is to say that it is not rented) at least since January 1st of the year preceding that of the sale

The exemption can only apply for the transfer of a single asset per taxpayer, within the limit of 150,000€ of net taxable capital gain. Beyond that, the surplus capital gain is taxable.

Apart from these stipulations, you may also be exempt from taxation on capital gains if you sell land or a building to an organization responsible for social housing or which undertakes to build social housing or a housing object of a joint real estate lease, within four or ten years depending on the type of project, or also, since January 1, 2022, for the benefit of an OFS (solidarity land organization). To benefit from these tax advantages, the sale must take place before December 31, 2022.

Calculating the taxable capital gain

The calculation of the taxable capital gain is carried out in two stages. First calculate the gross capital gain before applying the deductions. It is on the basis of the taxable capital gain that the tax is then calculated. The gross capital gain is the difference between the corrected selling price and the corrected acquisition price. The corrected purchase price (also called the corrected acquisition price) corresponds to the amount of the property entered on the deed of acquisition, to which are added the notary fees and other acquisition costs, as well as any renovation expenses.

– Gross capital gain = corrected selling price – corrected acquisition price

The sale price is the price at which the transaction took place, that is to say the price indicated in the final deed of sale. To calculate the gross capital gain, the sale and purchase prices must be the corrected prices.

Deductible expenses 

The sale price is increased by the charges and indemnities that the buyer owes you (if they are mentioned in the deed of sale). For example, if an owner owes the outgoing tenant an eviction indemnity and the purchaser agrees to pay it instead, the sale price will be increased by the amount of the indemnity.

The sale price is reduced by the costs that the seller must take on at the time of the sale. For example the cost of the obligatory diagnoses (asbestos, lead, termites…) or the expenses of release of mortgage encumbering the building. Since the price of the furniture is not taken into account in determining the taxable capital gain, you can dissociate the sale price of the furniture from that of the accommodation. By selling the furniture separately, you therefore reduce the amount of the taxable capital gain. But it is necessary to justify their price (by providing invoices, or, failing that, an inventory carried out by an auctioneer for example) and to mention the sale of the furniture. This is a (small) saving for the seller, but also for the buyer who will not have notary fees on the value of the furniture. These increases and decreases must obviously be justified by invoices.

The acquisition price taken into account is the purchase price actually paid by the buyer, i.e. the price indicated in the final deed of sale. In the case of property received free of charge, the market value of the property plus the transfer duties that have been calculated free of charge are taken into account. 

The purchase price can be increased

The purchase price is increased by:

– The acquisition costs which may be fixed at an amount of 7.5% of the price. You can retain the notary fees for their real amount if it is higher than 7.5%. In the event of property received by gift or inheritance, the flat rate of 7.5% is not possible and the notary fees must be taken into account for their real amount

– The amount of work you have carried out on the property, provided that you can justify it by producing invoices from companies

If you sell your home more than five years after its acquisition and you are unable to provide proof of the renovation expenses, the increase may be fixed at a flat rate of 15% of the purchase price. In the end, for a property held for at least 5 years, the purchase price may be increased by a flat rate of 22.5%. This increased purchase price is subtracted from the possibly corrected selling price, to obtain the gross capital gain.

Tables calculating capital gain tax depending on the length of ownership

The taxable capital gain is obtained by applying to the gross capital gain deductions per year of ownership. The idea being that the longer you have held the property, the greater the reduction, the more the net capital gain decreases and therefore the lower the amount of tax. 

In order to promote the rehabilitation and revitalization of certain cities, and to fight against urban sprawl and land take, an exceptional reduction of 70 to 85% has been applicable since January 1, 2021 if the sale allows the construction of collective apartment buildings. A certain number of conditions must be met to benefit from this exceptional reduction.

For income tax, the deduction for the holding period is established as follows:

– 6% for each year of ownership beyond the fifth and up to the twenty-first

– 4% for the twenty-second completed year of ownership

The total exemption of real estate capital gains from income tax is thus acquired at the end of a holding period of 22 years, against 30 years previously.

Holding period                           Reduction percentage

  Up to five years of ownership                0%

  6th year                                                  6%

  7th year                                                 12%

  8th year                                                 18%

  9th year                                                  24%

  10th year                                                30%

  11th year                                                36%

  12th year                                                42%

  13th year                                                48%

  14th year                                                54%

  15th year                                                60%

  16th year                                                66%

  17th year                                                72%

  18th year                                                78%

  19th year                                                84%

  20th year                                                90%

  21st year                                                96%

  22nd year                                              100%

For social security contributions, the allowance for length of detention is established as follows:

– 1.65% for each year of ownership beyond the fifth and up to the twenty-first

– 1.60% for the twenty-second year of ownership

– 9% for each year beyond the twenty-second

  Holding period                           Reduction percentage

  Up to 5 years of ownership             0%

  6th year                                           1.65%

  7th year                                           3.3%

  8th year                                           4.95%

  9th year                                           6.6%

  10th year                                         8.25%

  11th year                                          9.9%

  12th year                                         11.85%

  13th year                                         13.2%

  14th year                                         14.85%

  15th year                                         16.5%

  16th year                                         18.15%

  17th year                                         19.8%

  18th year                                         21.45%

  19th year                                         23.1%

  20th year                                         24.75%

  21st year                                         26.4%

  22nd year                                        28%

  23rd year                                         37%

  24th year                                         46%

  25th year                                         55%

  26th year                                         64%

  27th year                                         73%

  28th year                                         82%

  29th year                                         91%

  30th year                                         100%

* The years of detention are counted in full years. Thus, to benefit from an 11.55% deduction, you must have owned the property for at least twelve years; this means that you sell after twelve full years of ownership, i.e. between twelve and thirteen years of ownership. In the same way, you benefit from a 100% reduction if you sell the building after a holding period of thirty full years.

To calculate the amount of the tax, simply apply the tax rates to the taxable capital gain. This is subject to income tax and social security contributions. Once the taxable capital gain has been calculated, the question is how much tax you will pay. The tax breaks down as follows:

– 19% tax on income tax

– 17.2% social security contributions (CSG, CRDS and solidarity levy)

Declaring and paying a capital gain tax

The declaration and the payment take place at the time of the sale at the notary, and are the subject of a specific declaration that the notary makes on your behalf. Therefore, the seller receives the price of the property, net of tax. The remuneration of the notary for the declaration and payment of the tax on the capital gain, as provided for in the table which provides for the cost of the formalities carried out by the notaries, is 69.23€ including tax. These costs are the responsibility of the seller. When the capital gain is exempt, there is no need to file a declaration. The deed of sale must simply specify the nature and reason for the exemption or absence of taxation.

In addition, the net amount of the capital gain must be reported by the seller on his tax return (n°2042). Any breach of this declarative obligation is sanctioned by the application of a fine equal to 5% of the undeclared sums. The amount of this fine may not be less than 150€ or more than 1,500€, these amounts being reduced respectively to 75€ and 750€ when no failure to report has been sanctioned during the last three years.

A surcharge for capital gains over 50,000€

Since January 1, 2013, a surcharge has been imposed on capital gains over 50,000€. The surcharge only applies to the sale of housing and not to the sale of land. Here is the scale of this additional tax:

From €50,001 to €60,000               2% G – (60,000 – G) x 1/20

From €60,001 to €100,000             2.00%

From €100,001 to €110,000           3% G – (110,000 – G) x 1/10

From €110,001 to €150,000           3.00%

From €150,001 to €160,000           4% G – (160,000 – G) x 15/100

From €160,001 to €200,000           4.00%

From €200,001 to €210,000           5% G – (210,000 – G) x 20/100

From €210,001 to €250,000           5.00%

From €250,001 to €260,000           6% G – (260,000 – G) x 25/100

Over €260,000                                    6.00%

Example: for a taxable capital gain of 65,000€, the amount of the surcharge is 1,300€.

Source:   PAP.fr