An introduction to French capital gains tax

When we buy assets such as property and shares, the aim is for them to increase in value, hopefully rewarding us with a good profit when we sell them. The downside is having to give some of our gains to the taxman - this is called capital gains tax (CGT) or in French taxe sur les plus-values.

French capital gains tax (CGT) on property sales

The key question for most people is whether they will pay tax when selling their home.

France potentially allows you to sell your main home without any liability to capital gains tax, but this is an ‘all or nothing’ relief. Sales of second homes are subject to capital gains tax, unlike main homes, which are exempt.

The authorities focus on where you were living at the time the property was vacated, and whether the sale took place within a ‘normal’ timeframe afterwards.

Put simply, if you were residing there in an ‘effective and habitual’ manner prior to the sale (probably because it was convenient for your personal and work commitments), or within a reasonable time of vacancy given the conditions of the property market (up to around one year), you should not have to pay tax. 

It does not matter if you did not live in it for a very extended period of time or used to rent it out at one stage, provided it was your principal residence at the end. 

However, to avoid any uncertainty over whether it has become your main home, it is preferable to have lived in it as such for around a year, and to have notified it as your main home via the Biens Immobiliers section of your account at impots.gouv.fr and potentially have paid at least one local tax bill on a ‘main residence’ basis. 

On the other hand, if the property was your home for many years but you moved out a year or more before it is sold, you may be liable for tax on the full gain. 

If you rent a property out between vacating and selling it, you invalidate the permitted grace period and the rental earnings could fall far short of your CGT bill.

Where a property is eligible for capital gains tax, this is calculated on the gain, which is to say purchase price minus what you sell it for. 

You can add to the purchase price certain purchaser’s costs such as notaire fees (or otherwise a flat 7.5%) and expenses related to extensions and improvements (or a flat 15%). 

You can also deduct from the sale price certain seller’s expenses such as the cost of property check certificates. Expenses for improvements etc. are only for major works, not for any minor maintenance or adaptations linked to letting the property.

Deductions are made to taxable gains for full years of ownership, accumulating after five full years, leading to complete exemption from CGT after 22 years and from social charges after 30.

Certain other, fairly marginal, exemptions exist. For example, if you receive a state pension (such as US social security) and your annual income is below a certain very low level, you may escape CGT on property. Likewise, if you invest the proceeds into a main home and did not own a main home in the previous four years.

For properties not classed as a main home, the remaining taxable gain after any deductions is taxed at 19% for amounts up to €50,000, after which surcharges between 2% and 6% are added in the case of ‘large capital gains’. Social charges are also levied at 17.2%.

Capital gains tax on rental properties

Reader Question: If we let out our second home will the letting period reduce the capital gains tax taper relief linked to length of ownership?

With regard to the calculation of deductions, it does not matter if the property is used to let out, or is for your own use.

Note that if a property is a person’s own main home its sale is exempt from CGT, however, if such a home is occasionally let out, it is important to ensure the tax office does not classify it as a rental property, thus losing the exemption. 

However, as you are talking about a second home (which does not benefit from this exemption) this issue does not apply in your case.

Capital gains tax on shares and other capital investments 

France now has a relatively straightforward regime for the taxation of capital gains made on the disposal of shares/equities and other securities. They are taxed the same as interest and dividends, which is at a flat rate of 30%.

This covers both tax and social charges.

Taxpayers on lower incomes can opt to be taxed under the old system, where you pay tax at the income tax band rates. 

Capital gains on sales of valuables

Reader question: Do you have to declare and pay tax on capital gains of valuable items that you sell?

If you sell a valuable painting, piece of jewellery, watch, vintage car or other antique or collectible item, it can often result in a taxable capital gain. However with the exception of precious metals – raw or partially-worked, eg. gold leaf and coins post-1800 – this tax only concerns sales for more than €5,000.

If you know what the item cost, have had it for more than 22 years and have proof, you can opt for the ordinary capital gains tax regime. There are reductions of the taxable gain for length of ownership (exemption comes after 22 years), with tax at 19% plus 17.2% social charges. 

For an alternative flat-rate taxe forfaitaire (fixed-rate tax) regime at 6% of the item’s value (11% for precious metals) plus CRDS social charge at 0.5% fill out form 2091-SD. It too should be paid to the tax office within one month.

…and on everyday items 

Generally income that comes from selling your own used items (clothes, books etc) does not have to be declared, unless they are valuable collector’s items (see above). 

Essentially there would only be a declarable income here if you were considered to have made a capital gain but in the vast majority of cases you will probably sell for less than you paid for the item.