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OCTOBER 2011

Generally, individuals who own property in France are liable to pay French Capital Gains Tax (FCGT) on gains arising on a sale of that property.  The rate of FCGT depends on the seller’s residence status.  Non-residents who are resident in the EU pay FCGT at 19% on any gains.  At the moment, second home owners benefit from a 10% annual reduction on FCGT from the sixth year of ownership of the property and full relief from FCGT after 15 years of ownership. Individuals are exempt from paying FCGT if the property which is being sold qualifies as their main residence. 

A number of amendments to the Capital Gains Tax laws in France were adopted by the Assemblée Nationale on 7 September 2011.  These operate to decrease the annual reduction of 10% per year from the sixth year of ownership to a new scale of relief ranging from 2% to 8%.  In addition, the 15 year ownership exemption from FCGT in respect of second home owners will be increased to a period of 30 years. 

The new regime is set to apply to property sales from 1 February 2012 and is therefore expected to trigger heightened activity in the French property market as individuals with French holiday homes attempt to complete prior to this date.

However, the French Parliament passed a subsequent amendment on 12 October 2011 which softens the impact of the initial changes.  The most recent amendment states that the sale of second homes will be exempt from FCGT when the seller does not own a principal residence in France.  The seller must have owned the house for at least five years and cannot have owned a principal residence in France for at least two years.

It has been suggested that this amendment seeks to benefit French expatriates, but it could provide relief for thousands of UK owners of French residential property.  

Stephanie Brobbey
Solicitor

If you would like any further information about the issues raised in this article please contact Stephanie Brobbey (sbrobbey@gdlaw.co.uk), or any other member of Goodman Derrick LLP’s private client team on 0207 404 0606.

This guide is for general information and interest only and should not be relied upon as providing specific legal advice.