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updates from the 18th of January 2014:
The French Parliament and the French Constitutional Court have backed up the original capital gains tax refrom on houses/flats with no changes. However, the Constitutional Court cancelled the drastic reform of capital gains tax on building land, please read our posts:
Yesterday the French Parliament voted in favour of the Capital Gains Tax (CGT) reform on second home. The main aspects of the reform, which has been in place since the 1st of September, are (see our post ““capital gains tax on French property: latest updates and calculations (part 1)” for detailed explanation)
- the total exemption of the 19% capital gains tax after 22 years (with smoothing factors from the 6th years)
- the total exemption of the 15.5% “social charges” after 30 years (with also smoothing factors)
- an additional 25% rebate on the 19% tax and the 15.5% social charges from the 1st of September 2013 to the 31st of August 2014
The measures 1 and 3 have been definitely backed by the French Parliament, it is therefore a certainty that the capital gains tax is now significantly reduced compared to what prevailed before the 1st of September 2013.
However, point 2 may still be challenged by the French Parliament. the 15.5% “social charges” part of the CGT (see our post “capital gains tax on French property: latest updates and calculations (part 1)”) benefits from a 9% rebate per year from the 23rd year of property ownership until the 30th year of ownership, leading to a complete exemption of the social charges after 30 years. As we reported in our post “French capital gains tax reform: uncertainties for second homes own more than 22 years” dated 14th of October, the finance committee is still advocating an amendment to suppress the 9% rebate from the 23rd year onward. For the moment, the debate on this amendment has been postponed, and we do not know whether the Parliament will vote in favour of it.
Capital gains reform on building land postponed to the 1st of March 2014:
In our post “time to buy building land in France?” we already mentioned that “the capital gains reform will not apply to building lands. On the contrary, capital gains tax on building land remains the same as it stands now and after the 1st of September 2013*. After the 1st of January 2014, all rebate will be cancelled, which means that anybody who owns a building land in France and sell it, will have to pay 34,5%** of the amount of capital gains even if the land was acquired more than 30 years ago”. However, the Parliament has postponed the reform to the 1st of March instead of the 1st of January. You still need to factor the time for granting the planning permission and the subsequent time for possible appeal from third party against the planning permission. If you have already started the planning application process and you have a deadline to sign an “acte de vente” (final acquisition contract at the notaire office) before the 1st of January but you feel that everything might be delayed, you may negotiate 2 months more with the seller as it will not impact his capital gains tax.