TECHNICAL NOTES: DISPOSAL OF A FRENCH PROPERTY:

A BRIEF INTRODUCTION TO THE FRENCH & UK TAX TREATMENT OF ANY GAINS

Gains made from the sale of French property owned directly by an individual or individuals are liable to Capital Gains Tax in France. Equally, if the individual is resident or ordinarily resident in the UK, the disposal of the French property will also be subject to UK Capital Gains Tax.

Although a Double Taxation Treaty exists between France and the UK, the purpose of the agreement is not to allow the individual to "choose" in which country to pay the tax, nor is it designed to allow tax to be paid in only one country and not the other. Instead, the treaty simply allows that for a UK resident, any French tax paid will be credited against the UK tax arising from the same gain.

This introductory report does not cover gains made from the sale of a property by a UK Ltd Company, or gains made from the sale of shares in a Ltd Company.

Please contact our office, if the sale involves a Ltd Company.

Regarding the sale by an SCI the information below explaining the French tax treatment is also valid. However, the UK tax position is different. The explanation of the UK tax treatment and consequences of sale by an SCI is found in our note SCI VOLUNTARY DISSOLUTION.

The report is based on legislation current for the UK tax year 2016/2017 and French Finance Acts of 2016.

Part 1 FRANCE - BASIC RULES FOR RATES OF TAX AND CALCULATION OF THE GAIN (2015). “REGIME DES PLUS VALUES PRIVEES”

The following summary describes the assessment of gains from the sale of private assets realised on or after 01/01/2015, (Régime des Plus-Values Privées). This does not apply to property which forms part of the assets of a professional business, such as “location en meublé professionnelle”. The description also does not apply to the disposal of a property by a UK ltd company or any other commercial company.

Please refer back to our office if you believe your property transaction falls within any of these categories.

In general, apart from both jurisdictions applying tax on the gain and identifying the gain as the difference between the sale price and the purchase price plus enhancement costs, there is very little similarity between France and the UK as to what constitutes the net taxable gain.

1. TAX RATE SINCE 01 JANUARY 2015

For an individual not resident in France, a flat Capital Gains Tax rate of 34.5% is normally applied, irrespective of the level of personal income generated in that year, and the number of owners.

For the time being at least, the basic flat charge comprises 2 distinct elements: “Impôt sur le Revenu” and “Prelevements Sociaux” . Their nature and the scope of their application differ in two substantial ways both for the purpose of calculating the taxable gain in France and the claim for double tax relief in the UK.

These differences and their impact are explained in Section 2.2. and Part 2 Section 1.1 below.

1.1 TAXABLE GAINS IN EXCESS OF 50.000€ : SUPPLEMENTARY TAX CHARGE

When the taxable gain exceeds 50.000€ per owner a supplementary tax charge will apply on the whole gain at the following rates shown in the table overleaf.

Click here to see an illustrative table Supplementary Capital Gains Tax : Basic Rates and Transitional Reliefs

When added to the basic rates, an unlucky taxpayer could therefore now find themselves paying a tax rate as high as 96.5% on any sale made from 01/09/2014.

Even for an EU resident the tax charge could be over 40% of the taxable gain.

Illustrative Example: Click here to see an illustrative table Summary of French CGT rates according to the status of the Taxpayer

2. EXEMPTIONS & TAPER RELIEF

The availability of exemptions and reliefs will depend on several factors: