Capital gains on UK property sale
Which country taxes capital gains on the sale of my UK property?
I own a property in the UK comprising a lock-up shop with three small flats above. I understand there have been changes in the double taxation agreement between France and the UK, and that, should I wish to sell the freehold, I would be liable for CGT now in France and not the UK.
I have lived in France for nearly six years and have always paid my tax in the UK from the rental income received from the property. I file a French tax return every year and need some advice regarding capital gains liability and social charges if I decide to sell. L.F.
The new France-British double tax treaty was signed in the UK December 2009, and in France in January 2010, the latter of these two dates being the operative date, the treaty then coming into force in the following tax year, thus from January 1, 2011. As of that date, the capital gain made on the sale of property in the UK will be taxed in the country of the owner’s residence, in your case France.
Accordingly, the net gain (after all allowable associated costs, such as solicitors’ and estate agency fees etc) will be assessable in France.
From this net gain, two deductions are made. The first is a reduction in the amount of the gain :
- For the first five years of ownership: no deduction
- After six years of ownership: 10 per cent deduction of the gain
- After seven years of ownership: 20 per cent deduction of the gain
- After eight years of ownership: 30 per cent deduction of the gain and so on, until after 14 years of ownership, 90 per cent deduction of the gain and after 15 years of ownership 100 per cent deduction of the gain, making the sale completely tax free.
The second deduction, if the gain is still taxable, is a standard deduction of e1,000.
In addition to any tax liability, which is levied at 16 per cent, there are also social charges at 12.1 per cent currently, making a total charge of some 28.1 per cent.
Also, there may be currency issues to take into account, as both the purchase and the sale will have to be converted into euros, possibly affecting the final profit outcome.
This should be in your favour, as the cost is being inflated owing to the higher past exchange rate applicable when the property was acquired, and the now lower exchange rate on the property sale.
