UK-France capital gains: best time to sell is not always obvious

When we buy assets such as property and shares, the aim is for them to rise in value and generate a profit when sold.

The challenge for British expatriates is that the tax consequences are not always straightforward, particularly when assets, residency and tax liabilities span both France and the UK. Understanding the key differences between the two systems can help avoid unexpected liabilities and identify valuable planning opportunities.

French capital gains tax on property

Gains made on the sale of real estate are taxed at 19%, plus surcharges of between 2% and 6% for gains exceeding €50,000.

Social charges on property gains are generally 17.2%, reduced to 7.5% for certain people affiliated with a social security system outside France who qualify for the relevant exemption from French social contributions.

The top combined rate is 42.2%, or 32.5% where the reduced social charge applies.

France offers taper relief based on length of ownership. The gain is gradually reduced for tax purposes from the sixth year until it becomes fully tax-exempt after 22 years. After 30 years, it is also exempt from social charges.

Contact Blevins Franks to find out more about making your money work for you in France.

Main home and other exemptions

The main home is exempt from capital gains tax (CGT) in France. Put simply, if the property qualifies as your principal residence at the time of sale, you do not pay CGT on the gain.

If you sell your home after moving out, timing is crucial. The exemption may still apply if the property is sold within a reasonable period after departure and remains vacant, but this depends on the circumstances. Renting the property out can jeopardise the exemption.

Property gains may also qualify for CGT exemptions in certain other circumstances, including where someone sells a property to acquire a main home and meets the relevant conditions, or where a pensioner has income and wealth below specified thresholds.

Selling UK property as a French resident

If you sell your UK home after moving to France, you may be assessed for tax in both countries.

UK tax can apply to gains accruing from April 2015 on residential property owned by non-residents, and from April 2019 on other UK property and land. France may also tax the gain because you are French tax-resident.

The UK-France double taxation treaty provides mechanisms to prevent the same gain being taxed twice, although the calculation depends on the circumstances and the relief available.

UK CGT rates for most individuals are 18% for gains falling within the basic-rate band and 24% for gains above it. The annual exempt amount is £3,000.

If the property was previously your main home, you may still qualify for UK Private Residence Relief (PRR) for the period it was your main residence and the final nine months of ownership, subject to the relevant conditions. After that, UK CGT may apply to the taxable part of the gain.

The difference between these UK and French rules can create a dilemma. Delaying a sale may reduce French tax but increase your UK liability. Careful calculations can help identify the ownership period that produces the lowest overall tax burden.

Selling property when returning to the UK

The gain on a French property may remain taxable in France because the property is located there, even if you sell after resuming UK residence.

When selling your former main home, an exemption may be available if you sell by the end of the calendar year following the year you leave France, provided the relevant conditions are met and the property has not been rented out.

As a UK tax resident, you may also need to declare the gain to HMRC, with relief potentially available for French tax paid.

UK PRR can apply to an overseas main home, subject to the normal qualifying conditions.

Additionally, if you return to the UK after at least 10 consecutive tax years of non-UK residence, you could potentially qualify for the UK's foreign income and gains (FIG) regime. Eligible foreign income and gains can be exempt from UK tax during the first four years of UK tax residence, provided the conditions are met.

With French and UK tax rules applying simultaneously, the best time to sell is not always obvious. The interaction between French and UK reliefs can significantly affect the overall tax outcome, making careful cross-border planning essential.

French CGT on capital investments

Capital gains made on the sale of shares and other securities are generally taxed as investment income in France, at a flat rate of 31.4%. This includes income tax and social charges. The rate may fall to 20.3% for people who qualify for the relevant reduced social charges.

If you hold investments directly and regularly switch between funds, shares or other assets, each disposal must be declared and may trigger tax on any gains.

However, France offers a tax-efficient investment structure in the form of the popular assurance vie, which can significantly reduce the tax impact of investment growth over the long term.

Income and gains can accumulate within the policy without immediate taxation as investments are bought and sold. When you make withdrawals, only the growth element is taxable, subject to the applicable rules.

An assurance vie can also be a useful way to manage succession planning and may generate significant tax savings. Do your homework before selecting a policy to confirm it suits your circumstances and objectives.

Selling investments when relocating

When selling UK shares or other securities as a French resident, or vice versa, the gains are generally taxed in your country of tax residence, subject to exceptions and the terms of the relevant double taxation treaty.

Whether you are moving to France or returning to the UK, consider how the timing of your move and asset disposals could affect your tax position.

If you are selling a UK business, seek cross-border tax mitigation advice as early as possible.

Those with greater flexibility could even consider spending a few years in a more tax-friendly jurisdiction between leaving the UK and arriving in France, although the tax consequences of temporary non-residence and other anti-avoidance rules must be considered.

Cross-border tax planning

CGT planning between the UK and France can be far more complex than it first appears.

Different tax rates, reliefs and exemptions, and residency rules can all affect the outcome, and the most tax-efficient approach is often not immediately obvious.

Before selling property, investments or a business, seek advice from a suitably qualified cross-border tax and wealth management adviser who can assess your circumstances and help you avoid costly mistakes.

Rob Kay is a financial adviser and regional director of Blevins Franks