French Capital Gains tax update

French National Assembly

The new law on French capital gains tax is set to come into force for properties sold after 1st of February 2012 after a new version of the law was ratified by the French National Assembly on the 7th of September and adopted by the Senate the following day. The tax will be levied on gains made on second homes or investment property with exception of the main residence.

Under the previous regime the taxable value of the property was reduced by 10% each year after five years of ownership resulting in no tax due after 15 years of ownership. Under the new rules it will still be possible to have a zero tax bill on the ownership of a second home in France, though now only after 30 years.

Although the law will not materially affect non resident owners in Briton and Europe owing to dual-taxation arrangements, the tax will be higher on residents of countries without such treaties. It is recommended if you have property in France, that you are thinking of selling, to sign a sales contract in November to have a chance of taking advantage of the old system (you may still be taxed under the new system if you sell your property to a company).

The details are as follows: First 5 years: no reduction Years 6 to 17: 2% per year Years 18 to 24:4% per year Years 25 to 30: 18% per year.

It will still be possible to deduct the acquisition costs and any renovation costs though generally this amount will be limited to 15% of the purchase price.

We may well see a glut of properties onto the market and some bargains around for those able to take advantage of the low interest rates currently on offer.