French court backs homeowners in capital gains tax dispute over primary residence

A top court has ruled in favour of a couple who were in dispute with their tax office over a €149,353 bill for capital gains tax on the sale of what they said was their main home.

The Conseil d'Etat said that two lower courts had been swayed by irrelevant and 'subjective' factors in considering whether the property in question was really the couple's main home. 

It said that only the objective facts as to whether a home is in fact being used as someone's main residence should be taken into account. 

This is the case even if, as in this case, the owners may have hoped to make a good profit on the property and did not keep it as their main home for a long period.

The case revolved around an architect-designed property the couple had had built close to what was their previous main home

In France, there is no capital gains tax on the sale of a property if owners were living there at the time of the sale and can prove it was their principal residence. 

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In this case, a couple built the new property, on adjoining land they had bought at the start of 2014 for €100,000. They paid €273,915 for the build. 

They sold the new house for €595,000 on June 26, 2015, and believed they were entitled to capital gains tax exemption because they had been living in the new home making it their “primary residence”. 

However, tax authorities claimed €149,358 from them in capital gains tax. The couple appealed the decision to the Orléans administrative court in March 2021 and the Versailles administrative court of appeal in April 2023.

They maintained they had moved into the new property, making it their main residence, on November 1, 2014.

It continued to be their main residence, they said, even though they moved out on April 29, 2015, before the sale concluded on June 26, 2015. 

This meant they were living in the property for just under six months. 

Both lower courts rejected the appeal. 

Read more: How can renovations on French second home reduce capital gains tax?

The Conseil d'Etait, the top administrative appeal court, considered they had based their judgment on “subjective” criteria: the land was bought by a company in which the husband was a partner, and he worked as a property developer and had previously taken part in several personal property transactions in which he had claimed tax exemptions. 

The courts said this showed the couple did not truly intend to make the home their main residence. 

However, the Conseil d’Etat, ruled these arguments were invalid. 

It found that the only thing that mattered was objective criteria; ie. proof the couple were using the newer property as their main residence. 

Proof of residence

In France, there is no minimum occupancy period needed to prove the place you were living was your main residence. 

You only need to prove you were living in the property. 

In this case, the proof included home insurance, which stated the new address as the main residence from November 1, 2014, an internet contract with the activation of the router on December 5, 2014 and electricity and water usage figures “compatible with Insee data on average household consumption” (Insee is France’s national statistics institute). 

French media reports note France’s tax authorities can be particularly meticulous when looking at electricity and water usage when they are trying to prove or disprove whether a property is a primary residence. 

The Conseil d’Etat concluded that the court of appeal had come to a hypothesis without taking into account the objective facts, and overturned the previous ruling.