No Gain, No Tax Pain!

When you’re considering selling a property in France, if it is not your primary residence, then you can expect to pay a certain amount of Capital Gains Tax CGT). While no one I know wants to pay tax at all, CGT is based on the profits —  the difference between the sale price and the purchase price or the declared value, when the property has been acquired by donation or inheritance, so how can one complain too much!? There are ways to lose, however, should you have “over capitalized” the property by investing more in renovation/decoration that can be justified against the market value of the property at the time of sale.

If you’re considering selling a property, there are tools online provided by the Chambre de Notaires de Paris to estimate what you can expect to pay in capital gains. The following are excerpts from the Chambre de Notaire website with edits: 

The capital gain is equal to the difference between the sale price, taking into account any costs to sell (agency commissions) and the amount of VAT paid (Value Added Tax), and the original purchase price (less the Notarial taxes and fees paid when buying the property) or the declared value when the property was received by gift or inheritance (also taking into account actual expenses and any inheritance rights if they were supported by the donee or heir).

The purchase price may have been increased by construction expenditures, reconstruction, expansion or improvement if they were supported by the vendor and built by a company in the supporting statement of reserves (invoices subject to VAT). Special note: materials and work done by the owner himself are not deductible! In all cases, the expenses of maintenance and repair, including major repairs, are not included among the expenses that can be taken into account for calculating the capital gain. They include those which correspond to work intended to maintain or restore a building in good condition and to allow normal use.

Alternatively, if the property has been owned for at least five years, the seller is allowed to decrease the gain by 15 percent as a simple option, with the assumption that some work/maintenance has been done within that time frame, without any justification. (It is advisable to maintain a dossier of invoices and receipts for all work done to a property should you wish to make a claim more than 15 percent.)

The tax is calculated as follows:

Therefore, the capital gain is exempt after 22 years of ownership on the gain and after 30 years of ownership for social contributions. Social contributions are highly controversial for non-French residents, who don’t benefit form the social contributions. Since the De Ruyter legal case in 2015, social contributions are not applicable to tax payers who are not covered by the French “securité sociale,” but are affiliated to another health regime in another country of the EU or the EEA (including Iceland, Liechtenstein, Norway and Switzerland). In response to that, the French government found another way to replace the social contributions by a tax of 7.5%, making a total taxation on capital gains of 26.5%, as of 2019, instead of 36.2%. This new regime only applies for EU members and non-EU members will continue to pay the full tax rate of 36.2% (19% of CGT + 17.2% of social contributions). As Americans, we are still discriminated against as the social security tax would be assessed at the time of sale…but we would have the right to make a claim for a refund. (My guess is that claims would be futile — like trying to “fight city hall!”)

The bottom line is whether your property has provided a return on investment. Any rental revenues received means that Other People’s Money (what I call “OPM”) have helped fund your investment. If at the time of purchase, you made improvements to the property at a rate, that when added to your cost of purchase, didn’t exceed the current market value, then likely you will be paying a tax on the gain and happily so. One must also consider the value of the housing the property has provided. If you’ve owned a pied-à-terre in Paris, using it four weeks a year, and perhaps renting it the rest of the time, or periodically, then you have benefited from what those four weeks would have cost you renting another property or staying in a hotel.

If ownership in France is purely for investment reasons, I’d actually advise against it. There are lots of other ways and places of making real estate investments that will yield a higher return…but I doubt you’ll have as much pleasure from them!…And that counts!

For more information, visit the following sites:

notaires.fr/en/capital-gains-tax-
service-public.fr/particuliers/vosdroits/
legifrance.gouv.fr/eli/loi/2017/

And to estimate your capital gains tax, click here.

A bientôt,

Adrian Leeds
Adrian Leeds Group

Respond to Adrian

Donna Kuker with Niçois Clients & Friends

P.S. We just got his message from new Nice property-owner, Donna Kuker, sent to all our clients/friends in Nice with whom she celebrated in her new Niçois apartment before leaving town:

“Thanks all for celebrating my new FRENCH apartment! I still can’t believe it is real, it’s a dream that has come true! Hope to see you next month. Enjoy every minute of the French Riviera!“

Nothing makes my happier than to make someone else’s dream come true! Let us help you realize yours. Contact us today!