Capital gains tax rules are complex

Connexion's Hugh MacDonald explains and develops why capital gains tax rules are so complex.

27 February 2014
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I am close to completing on the sale of our French second home and the notaire has cited yet more reasons why our capital gains tax is increasing.
First, he presented our bills to an accredited firm in Paris to calculate the CGT and they were returned because we had not provided bank statements as well.
Now we have to have all the bills altered as they include the word ‘renovation’ - this means that bills from firms that are no longer trading are not allowed.
We are also being taxed because we have a large field and we could have building permission for it, even though we have not applied for this. There appear to be a lot of rules aimed at non-residents to get more tax from them. Our notaire says the rules seem to be getting harder and more complex. F.G.

It is true that notaires are no longer responsible for completing the tax calculations on sales for non residents.

For claims you must supply an invoice made out to the owners of the property, using the address of the property and you will need to provide bank statements showing the amounts paid.

The reason is that you are the one obtaining tax relief so the tax authorities want to ensure it is you that paid the bills.

It is also correct that ‘renovations’ are not claimable since this work is considered to be a matter of choice not necessity.
As an example, repainting the walls of an otherwise habitable house in a new colour would not be claimable whereas finishing off a property by putting rendering on the walls, adding standard fixtures such as toilets, bathrooms and kitchens would be allowable.

The distinction between costs that are factual improvements (thus allowable) as opposed to those of ‘renovations’ and therefore seen as unnecessary, often causes confusion.
However, the fact remains that things of a more cosmetic, optional kind are not allowable.

With regard to work completed by firms that are no longer trading and which, thus, cannot alter their bills, I am afraid there is nothing you can do about this.

As to the land, it is important to see what it says in the deed of sale.
If the property is sold in its entirety (including the land) as a home, then no, the fact that building permission may or may not be given is not valid.
On the other hand, if it states the house is being sold and, as a separate issue, along with some land, the first question is whether the land is actually part of the house, or not.
If not, then yes, there could be a valid case for treating the sale of the land separately to the sale of the house for tax purposes.
The second question is whether the land would qualify for normal building or agricultural only building since the tax rules are different.

As to the reason behind the distinction between land and the house, there are differences in how the two are taxed.

As of 2014, for example, the government has announced that building land is again subject to the old abatement rules that applied from February 2012 to September 2013 for bricks and mortar property – ie. it will take 30 years for full exoneration instead of 22 for the latter (although social charges are not fully exonerated until 30 years as is the case with building land).

Building land also does not benefit from the additional 25% off taxable capital gains that is in place until August 31, 2014.
However, on the other hand, building land is not subject to the surcharges that are in place for capital gains of more than €50,000.

With regard to the accredited company, generally this will be one of two banks but the point is that it assumes the financial responsibility of the tax office returning in a three year period form the date of the sale to request more tax - which is then for it, not you, to pay.
This may explain why it is so demanding.

Without sight of the legal sale document it is difficult to know the best solution, however, the first thing is to assess the value of the work that you are wanting to claim for (and what you can actually claim for with relevant documents) since as you have owned the property for more than five years you are entitled to a 15% deduction, based on the original property cost, to account for any work done to the property.

It may be worthwhile taking advice from a specialist in law and taxation who will be able to take into account the international perspectives.

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