Can renovation costs be deducted from French capital gains tax?
Upon dissolution of a société civile immobilière, property owners must pay French capital gains tax on the increase in value
Improvement work relates to amenities, rather than repairs
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Reader Question: I understand that on dissolution of a société civile immobilière (SCI) – we set one up in 2007 to buy a second home – one must pay French capital gains tax (CGT) on the ‘plus-value’ and you can deduct costs for building and renovation. However, all our invoices were in our personal names, not the SCI’s. Is it possible to deduct these?
We assume your SCI (company structure set up to own property) is taxable under income tax and not corporation tax, as is usual in simple set-ups such as you describe. If not, rules apply.
Such SCIs are subject to French CGT in the same way as property owned by a member of the public and the tax is payable by the associates in proportion to their shareholdings.
Read more: French wealth tax: Six ways to reduce what you have to pay
So, you can add to the sale price certain construction or improvement costs, which can reduce the amount of any taxable capital gain (plus-value). ‘Improvement’ work must add some new comfort or amenity and should not just be renovation or repair.
French case law in the administrative appeal court of Nantes in 2022 looked at whether ‘improvement’ bills paid by one associate in their name and not the name of the company, may be used.
The court did not rule this out, but in the particular case did so as the bills lacked key details including the address where the work was carried out, what materials were supplied or what exact work was done. The court also found that the person did not have evidence of any bank transfers to himself from the SCI corresponding to the amounts.
If this is the case in your situation also, then the bills may not be acceptable.
Read more: Are SCIs required to have their own French bank account?
We note that, if you or other associates who own €150,000 or more of the value of the SCI (in this case the second home) are non-residents, it is necessary to designate a fiscal representative to oversee the calculation and payment of tax. They often ask to see bank statements showing the payments for the work as well as the invoices.
However where a property has been owned for at least five years, it is generally accepted that – unless there is proof that no such work has been done – a fixed 15% may, as an alternative, be added on to the purchase price to cover such works, without needing to supply bills.
