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French Constitutional Court recently declared unconstitutional the capital gains tax reform on building land voted by the French Parliament in December 2013.

The French government intended to increase drastically the capital gains tax on building land from the 1st of March 2014 (read our previous post….), leading to a radical 34.5% tax whatever the ownership duration, (e.g.: the 34.5% tax would have applied for a building land sold more than 30 years after its acquisition!)

However the ruling of the French Constitutional Court has the fortunate impact to keep the tax regime unchanged in 2014.

The French government has had to backtrack and therefore comply with the Court ruling. The Minister of Finance issued an official note on Thursday, 9 January 2013 confirming that the tax regime in place since the 1st of February 2012 remained unchanged.

Thus, owners of land can still benefit from progressive decrease (allowances) on income tax at 19% , and social contributions at 15.5 %. The annual allowance applicable is set at:

  • 2% for each year of ownership from the 6th year , up to the 17th year
  • 4% for each year of ownership from the 18th to the 24th year
  • 8 % for each year of ownership from the 25th to the 30th year , leading to a total exemption from capital gains after a holding period of thirty years ,

There is also a very positive consequence for potential buyers of building land in France: the French government reform would have reduced drastically the building land market, as owners of land would have waited for a more favourable tax regime. The Constitutional Court ruling, means that the building land market is not going to enter into a “frozen hibernate” state, and will remain as it was in 2013.

As a reminder, the capital gains tax on house and flats was reformed from the 1st of September 2013, and is under a different -more favourable- tax regime*.

*For more information on the capital gains tax reform for houses/flats, read the previous posts. The reform has been fully approved by the French Parliament in December 2013 and backed by the Constitutional Court

“2013 2014 capital gains tax calculator for French second home”

“Capital gains tax on French property: latest updates and calculations (part 1)