French Property – Double Taxations and Exemptions

French Taxation system is a progressive kind of tax system. The taxes in France are known for their complexities and intricate connections. The country’s tax system is easy for the residents, but it is not that easy for the non-residents in the country. However, the country offers a low rate of interest on rentals from French property, which makes the country a favorable place to buy properties and rent it out.

Overview

France allows the authorities to charge capital gains tax on the transferring or selling of properties in France. The rates for such tax on estates and properties differ on the nature of the acquisition. Subsequently, a person is not liable to pay any capital gain on the transfer of property in France, if it has been done by way of gifting it. On a similar note, inherited property is also exempt from any kind of tax.

Furthermore, if a citizen from the UK has a property on the French soil, the person needs to comply with both the countries, UK and France’s, regulations for owning the property. The existence of a treaty between France and UK makes this transaction easier and the circulation of information between the two countries easy.

Rates and Their Calculation

The rates for tax on the gains or income from the property will depend on the following factors:

• The country of an individual’s residency.
• The amount of gain made out of the property.
• Allowances and deductions made through the property.

Many countries have formed up treaties with France, which has led to a relaxation in the area of tax in relation to properties and real estate. The properties in France, when sold are taxable only in France. Additionally, the benefit of the tax relief from the sale will be given to the person in their home country.

In other words, the tax liability does not arise in the UK for a UK resident. The liability arises in France and is dealt with in France in the respective forms. However, it must be remembered that France has double taxation agreements with the UK, which allows the country to not levy the same tax twice. Meaning, the individual will have to report their sale and income or loss to the authorities in France and UK. Furthermore, once the authorities are informed, there will be no double taxation.

Taxes for Non-Residents in France

The France government levies a total tax of 36.2% on a non-resident. This total rate includes a CGT of 19% and social charges of 17.2%.

In addition to this, a supplementary rate of tax is also applicable to the large capital gains. The rates are segregated into five segments:

• Gains between the range of €50K to €100K are charged with 2% supplementary rate.
• Gains between the range of €100K up to €150K are going to be charged with 3% supplementary rate.
• Gains between the range €150K up to €200K are going to be charged with 4% supplementary rate.
• Gains between the range €200K up to €250K will be charged with 5% supplementary rate.
• Gains above the €250K range will be charged with 6% supplementary rate.

It must be noted that in case of joint holders, the liability will be distributed among the joint holders as per their agreements. For the members of EEA, the sale of the property is said to be done at the time of sale. Furthermore, the tax is cut from the proceeds of the building.

The methods of calculations for tax in both the countries are different. Therefore, the amount of tax owed in the UK and the amount of tax owed in France will be different. Furthermore, the property in France is also subject to wealth tax. The individual’s spouse is exempt from the wealth tax, but the distant relatives and other relatives are not.

Exemptions

There are a few exemptions if and when you sell the property in France. If a person is selling the house, is selling their residential house then such person is saved from taxation. The only condition is that the person is to be living there at the time of the sale. It does not matter if the person did not live there before.

Furthermore, if the person is in possession of the property for more than twenty-two years, then a taper system of relief is implemented which allows the person to get rid of some social charges. If the gains from the sale are invested in the main house, even when the income is exempt.

However, the above-mentioned exemptions are only for the French residents. The incomes and the capital gains of the UK residents or any other non-residents in France are completely taxable. The tax paid by the UK residents depends on the higher tax liability of the country, which is to say that if the UK resident’s tax liability is higher in the UK then the person will pay that amount and if it is higher in France, then the person will pay it there.

The rental income from the properties in France, the UK resident, will have to declare such income to both the authorities. However, the person will only be taxed once for such income.

For UK residents, to declare their capital gains, the form HMRC Form SA108 needs to be filled. Plus for a declaration of capital gains in France, the form Form SA106 "Foreign" with the helpsheet 261.

About the author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.