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Capital Gains Tax Reforms in Favor of Non-Residents

Volume XXII, Issue 8

Meme for Capitol Gains tax on real estate in France

A significant ruling was made recently regarding the partial exemption from capital gains tax for non-residents. In a specific case, a non-resident sold their property in France and applied for partial exemption from capital gains tax under the provisions applicable to non-residents. According to the law, non-residents are eligible for partial exemption from capital gains tax on the sale of a single property, provided:

• They were previously tax residents in France for at least two continuous years at the time of the sale
• The property was sold no later than December 31st of the year following the one in which the seller moved their tax domicile out of France
• The property was available to them throughout this period

Graphic map of Europe showing the Capitol gains rates in 2023

The exemption allows for a capital gain of up to €150,000 per person for jointly owned property. If the net taxable capital gain is below €150,000, the exemption is total. If it exceeds this amount, the exemption is partial, with the surplus subject to a 19% capital gains tax and 17.2% social charges (or 7.5% as applicable).

In the case at hand, the owner rented out the property for two weeks in August of the sale year, generating a total income of €45,000. Since the property was not freely available to the owner, the tax authority demanded payment of capital gains tax and social charges. After multiple unsuccessful hearings in lower courts, the owner made a final appeal to the Supreme Administrative Court, the “Conseil d’Etat.”

An apartment building in Nice with a for sale sign in the window of one of the aparatments

The primary question posed to the court was whether renting out a property affects the condition of free disposal necessary to qualify for the capital gains tax exemption for non-residents, as stipulated by the law. The court partially overturned previous rulings, asserting that the temporary rental of the property does not necessarily negate the owner’s freedom of disposal, thereby enabling them to benefit from the tax exemption.

The concept of “free disposal” lacks a precise legal definition, and this case marks the first instance where judges were required to establish criteria. In its judgment, the court stated: “The letting of real estate for consideration is one of the circumstances which, in principle, precludes its owner from being regarded as retaining freedom of disposition within the meaning and for the application of those provisions. However, where furnished accommodation is subject to occasional rentals during the relevant period, the condition required by the provision remains fulfilled, provided that the property’s availability to third parties can be considered, taking into account its duration, frequency, and other conditions, as negligible.”

An apartment building in Paris with a for sale sign in the window of one of the aparatments

Therefore, it appears that a property leased under a traditional lease, where tenants occupy the property as their primary residence, would not qualify for exemption. However, a property rented out for short periods as a seasonal rental might be exempt, as in such cases, the owner retains the right to dispose of the property at their convenience. As is often the case, the outcome depends on the circumstances.

International tax treaties may prescribe different rules compared to French domestic law. Some treaties assign the right to tax the capital gain to the country of residence of the transferor, while others divide it between the two countries or reserve it for the country where the property is located. Therefore, it is crucial to refer to the applicable convention to determine the tax treatment of the capital gain.​

For more information, visit this website, or consult with your Notaire or our tax advisor. We personally recommend Jonathan Hadida.

A bientôt,

Adrian Leeds in NiceAdrian Leeds
The Adrian Leeds Group®

P.S. We can help you make the move from beginning to end. Visit our website to learn more and to request a consultation.

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