Most countries apply a capital gains tax of sorts, and France is no exception.
Before you buy an asset that is expected to increase in value, understand how it will be taxed if and when you come to sell it. Likewise, if you are moving to France and bringing assets with you.
As the name perfectly describes, capital gains tax (or CGT) is the tax we pay when we dispose of an asset and a monetary gain is realised.
However, not all gains are taxed the same way. Movable/intangible assets, such as shares and bonds, are taxed very differently to immovable/tangible assets, such as property.
How are investments like shares and bonds taxed?
Gains made on securities such as shares, corporate bonds or loan stocks are not liable to ‘capital gains tax’, as such, but are taxed as investment income (together with bank interest and dividends).
Investment income is currently taxed at a fixed rate of 30%, which includes both the tax element (12.8%) and social charges (17.2%).
Lower earners can opt for investment income to be taxed at the scale rates of income tax. In this case, 50% of the gain is tax-free after two years, rising to 65% for shares held over eight years. Social charges will additionally apply at 17.2%.
If you are covered under the health system of another EU/EEA country, or are a UK national holding Form S1, social charges will be reduced to 7.5% whether your investment income is taxed at the scale rate or the flat tax.
Will I pay capital gains tax when selling my home?
Your principal home is exempt from capital gains tax in France.
This is regardless of what you do with the proceeds, but it must be your main home at the time of sale.
There is no ‘time apportionment’ for periods of occupation: if you do not sell it within one year of moving out, you will pay tax on the gain since acquisition.
What about other properties?
The standard capital gains tax rate when selling property is 19%. However, progressive surcharges from 2% to 6% are added to gains over €50,000, calculated after the application of the holding deduction detailed below.
There can be other exemptions besides the main home one.
If you receive a state pension and your wealth and income are below a certain level, you may escape capital gains tax on property. Likewise, if you invest the proceeds into a main home and did not own one the previous four years.
In any case, a taper relief system reduces capital gains tax the longer you have held the property, starting from the sixth year of ownership.
After 22 years, no capital gains tax is due.
Do you pay social charges on property gains?
Gains made on the sale of property are additionally liable to social charges at 17.2% (reduced for UK tax residents or S1 Form holders).
Again, a taper relief system reduces the charges by 1.65% from year six and by 9% from year 23, with total exemption after 30 years.
Since most of the relief falls in the last seven years, many people have greater social charge liabilities than capital gains tax liabilities.
This impacts UK tax residents selling French property, as you can offset the French tax element against your UK CGT liability but cannot offset social charges.
What should I do before moving to France?
It is important to review and adjust your financial affairs for your life in France – if you can do this before you move, all the better.
The UK provides an annual capital gains tax allowance, but in France the full gain since acquisition is liable to tax. So you will have missed the opportunity to use the UK allowance and potentially lower tax rates.
Likewise, you may be holding assets in structures which are tax-free in the UK, but not tax-free in France.
When it comes to property, compare what your CGT liability will be if you sell as a UK resident to what you would pay in France if you wait until you are resident here to dispose of it.
In summary, seek cross-border professional advice before you move.
What about leaving France?
Note that France applies an ‘exit tax’, which is essentially capital gains tax, even though you are not selling the asset.
This tax is levied when an individual who has been resident in France for six of the last 10 years leaves the country, and their total shareholdings are valued at more than €800,000 or they own more than a 50% share of a company.
The 30% tax arises the day before you depart and is levied on your potential gains – even though the shares have not been sold and so no gain is realised.
This tax is deferred (until the shares are sold, reimbursed, etc) when the individual moves to an EU or EEA member state, or to a third country with a tax information and administrative assistance agreement and the individual is moving for professional reasons.
A deferral may be granted in other situations as well.
You may be able to mitigate this tax by moving the capital into an assurance-vie first, as they are exempt from exit tax.
The exit charge may be also cancelled in some situations.
Think beyond capital gains tax
While your primary concern may be to reduce capital gains tax, think ahead to what you plan to do with the proceeds.
If you will be investing the capital, consider how this investment income and future gains will be taxed and what action you can take now to reduce this tax liability.
An assurance-vie, again, can provide significant tax advantages in years to come.
All in all, whether you are buying or selling an asset, and moving to or out of France, you should thoroughly research all the long-term tax implications beforehand.
Always take advice to plan ahead to improve your tax position.
Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon Blevins Franks’ understanding of current taxation laws and practices, which are subject to change. Tax information has been summarised; an individual is advised to seek personalised advice.