We own a second home and understand renovation work can be deducted from capital gains tax in the event of a sale. Does this cover all renovation work?
The capital gains tax calculation is based on the difference between the sale price – less allowable expenses – and the purchase price (plus allowable expenses). The purchase price is that on the deed of sale, plus notaire costs and “stamp duty” paid at the time of purchase.
You may also add to this any additional construction, enlargement or improvement costs. Repairs and maintenance cannot be taken into account. According to official French tax documentation, improvement work must bring a new element of comfort or adapt the home better to modern life, but without resulting in structural changes to the home.
Examples could include installing a lift, central heating, air conditioning or insulation work. Work included should not have been used to benefit from an income tax advantage. Only work carried out by a professional is eligible so any DIY work does not count. Materials are included if the firm purchased them but not if you bought them separately.
Invoices must be supplied and must include your name and the property’s address. Notaire Guillaume Roques from SCP Latour-Pélisson in Périgueux said it is acceptable to use invoices from foreign firms that are properly registered in their country, if they include all the information legally-required for a French invoice. The tax office is also entitled to ask for a translation.
If you cannot supply invoices for improvement works, provided you have owned the property for at least five years, notaires can alternatively add an allowance of 15% on the acquisition price against improvement works. CGT and social charges are applied on a sliding scale and vary with length of ownership.
As of January 1, 2021, people living in the UK will need to pay a fee (generally less than 1% of the sale price) to a professional représentant fiscal to verify the CGT process if the sale price is over €150,000.