Even when just based in your own country, this can get complicated but the minute things are international, involving more than one tax office, things can get yet more… exciting!
Let’s take, for example, a British citizen, living in France, selling their second home (maybe a former main home) in the UK.
The last update to the UK / France tax treaty agreed that UK property could be taxed where the owner lives, thus in this case France.
So, this surely means just simply knowing the French rules for capital gains tax (la plus-value immobilière) on selling property.
Indeed, this is a good place to start. The sale is free of capital gains tax after 22 years of ownership and free of social charges after 30 years.
The rate is 19% tax plus 17.2% social charges with various offsets / allowances / expenses to be considered. An extra tax is also payable beyond €50,000 of taxable gain – which varies between 2% and 6%.
But what about the UK tax authorities? The property is built upon and fixed to UK soil, so do they not have a say?
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The answer is more a no / yes / sort of (isn’t it great when life is simple?)
Prior to 2014, the UK did not apply capital gains tax to non-UK residents. However, from 2014, the UK does apply capital gains tax, but only from 2014.
If a value from the date the law changed cannot be proven, then a calculation is applied called Time Apportionment Relief (am I losing you yet?)
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Just as a little aside (as if it’s not already got complicated enough), if you move back to the UK within five years, the HMRC will assess you again, but on the basis that you never actually left, so on the full gain.
Evidently, the sale of a UK property, while living in France needs a little planning, but what about if the property in the UK was your principal private residence?
In the UK, there are rules giving you time to sell it as your primary residence and so thus not assessable to capital gains tax.
There is good news and bad news on this. The good news is that the French do have similar rules (under 150 U of the French tax code). You essentially get a year to sell the property, which may be extended to two years during poor market conditions.
There are other rules such as that the property must remain empty (although this may now be relaxed in certain cases) and must be on the market at the point of moving.
The bad news is that these rules apply only where the property is situated in France. It is clear in the law, yet we have seen that local tax offices seem to be somewhat confused, so we have seen this point ignored.
Interestingly, if there is a French property being sold and the owner is resident in the UK, the French fisc taxes it first and then HMRC reassesses it with a credit for any French tax paid.
There is no exemption for being a main home, if this was the case.
What to do next with so much complexity and uncertainty?
Our mantra is always to deal with certainty as far as possible, so that means selling the UK property before moving to France or vice versa, makes a lot of sense.
We would probably be a lot happier without one tax office working out how they can take our money, let alone two.
If it is, as we say in the UK a ‘fait accompli’, then some quality guidance is a must, to calculate how to minimise any taxation.
This column was written by Robert Kent of Kentingtons financial advisers.
See www.kentingtons.com
