When we buy assets such as property and shares, the aim is for them to increase in value, hopefully rewarding us with a good profit when we sell them. The downside is having to give some of our gains to the taxman. But is this always the case and does the tax have to be as much as we fear?
French capital gains tax (CGT) on property sales
The key question for most people is whether they will pay tax when selling their home.
France potentially allows you to sell your main home without any liability to capital gains tax, but this is an ‘all or nothing’ relief. The authorities focus on where you live at the time of sale.
Put simply, if you were residing in the property when it was sold, you will not have to pay tax. It does not matter if you did not live in it for extended periods of time or used to rent it out, provided it was your principal residence at the end.
On the other hand, if the property was your home for many years but you moved out a year or two before it is sold, you may be liable for tax on the full gain. There is a 12-month grace period for former residences, potentially up to 18 months. If you rent it out between vacating and selling it, you invalidate this and the rental earnings could fall far short of your CGT bill.
For properties not classed as a main home, gains are taxed at 19% for amounts up to €50,000, after which surcharges between 2% and 6% are added. Social charges are 17.2%, reduced to 7.5% if you have Form S1. The top combined rate is 42.5%.
Fortunately for long-term owners, France operates a taper relief according to length of ownership. The gain is gradually reduced for tax purposes, to the point where it becomes fully exempt after ownership of 22 years. After 30 years, it is also exempt from social charges.
There can be other exemptions. If you receive a state pension and your wealth and income are below a certain level, you may escape CGT on property. Likewise, if you invest the proceeds into a main home and did not own one in the previous four years.
Read more: Tax differences between main and second homes in France
Capital gains tax on shares and other capital investments
France now has a relatively straightforward regime for the taxation of capital gains made on the disposal of shares/equities and other securities. They are taxed the same as interest and dividends, which is at a flat rate of 30%.
This covers both tax and social charges, so if you only pay the 7.5% solidarity charge (you are retired and covered by another state’s health system), your rate reduces to 20.3%.
Taxpayers on lower incomes can opt to be taxed under the old system, where you pay tax at the income tax rates. Shares acquired before 2018 would benefit from taper relief.
Read more: Do we pay French CGT tax on the sale of our UK house?
France’s exit tax
France applies an ‘exit tax’, essentially CGT even though you are not selling the asset. This is levied when an individual who has been resident in France for six of the last 10 years leaves the country, and their total shareholdings are valued at more than €800,000 or they own more than 50% share of a company. The 30% tax arises the day before they depart and levied on potential gains.
This tax is deferred (until the shares are sold, reimbursed etc) if you move to an EU or EEA member state, or third country with a tax information agreement if moving for professional reasons.
Assurance-vie
Assurance-vie is a popular savings arrangement in France – for good reason. Besides reducing income, succession and potentially wealth tax, it can be a powerful way to mitigate CGT.
If you own shares and investments directly, without the benefit of a wrapper, every trade made on the portfolio should be declared and assessed for CGT, even if you are not taking withdrawals.
Assurance-vie eliminates this problem since trades taking place within the structure occur without a tax liability. You only pay tax on withdrawals and then only on the growth element of the withdrawal.
This can result in significant tax savings, and, as a bonus, your tax compliance becomes much easier. You don’t need to convert sterling investments into euros if that doesn’t suit you, and these policies also protect you from exit tax.
While assurance-vie can provide many benefits, do your homework before choosing one to confirm it suits your circumstances and objectives.
UK capital gains tax
French residents selling UK assets need to watch both tax regimes. Many assume they won’t pay UK tax when selling a UK property since they’re resident in France, when in fact they do, though only on the gain made since April 2015. You will also be assessed for French tax but won’t pay tax twice (you pay the higher amount).
It can be tempting to delay a sale to reduce or avoid French tax, but this could increase your UK CGT liability. There may be a sweet spot in terms of the period of ownership, taking into account both countries’ liabilities where the overall tax is at its lowest, but you would need to do some careful calculations.
Don’t forget that UK tax allowances are frozen until 2028. The CGT allowance was locked at £12,300 in March 2021, but then halved to £6,000 in April 2023 and cut again to £3,000 this April.
If you still have assets in the UK, this is a good time to question if you should leave them there. How much tax could you save in the long term if you move them out? All in all, whether you’re buying or selling an asset, thoroughly research the long-term tax implications and plan ahead to improve your tax position.
The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual should take personalised advice.
