How do cross-border capital gains charges work for French residents?

This month we shall try to demystify an area of cross-border finance that can cause a great deal of fear and trepidation – namely, what capital gains taxes are paid, and where, by French residents selling assets they own outside of France.

The natural reaction might be to assume the tax is paid in the country where the said assets are located. However, more often than not, this is absolutely not the case.

It is important to both know and understand that, as a French resident, one is taxed in France on one’s worldwide estate. 

The only exception is if there is a double tax treaty in place, between France and the country where the asset is situated.

Read more: Eight reasons to be cheerful about French income tax in 2024

Property rules

In this article, we will consider various examples of French residents selling assets held in the UK. 

To start with we will look at property, which has distinct rules, including a somewhat complicated system of allowances, depending on how long one has owned it.

UK property is the only asset class that may be taxed in both countries, although rest assured, you will not be taxed twice. 

According to the current double tax treaty between France and the UK, the UK has the right to tax French residents selling UK property, for gains since 2016. 

France also has the right to tax UK property sales for capital gains, as well as for social charges, but will give an allowance for any tax paid in the UK. 

Furthermore, in France there are additional allowances depending on how long you have owned the property. From year six of ownership, there is an increasing capital gains tax allowance, resulting in no capital gains tax (19%) after 22 years of ownership. 

Read more: Must I declare dividends that are reinvested outside of France?

Social charges (17.2%) are also degressive, but on a different scale and indeed a different timescale, meaning one would have to own a property for 30 years in order to have zero liability.

Phew! I warned you it is not simple. Of course, a principal residence (main home, sold whilst you are still living in it) is not subject to capital gains tax, which is a relief.

The other principal asset that might be held in the UK, yet subject to French capital gains tax, is stocks and shares. 

ISA rule

Please be aware that an ISA is not recognised in France, so the French will simply tax the underlying assets. 

The rule for shares is rather more simple, and indeed one has a choice. 

One may elect to pay the fixed flat tax rate, which at 30% includes social charges of 17.2%. Alternatively, one may choose to declare and pay at one’s marginal tax rate, in which case there may be an allowance for shares bought before 2018. 

Note that this is the only allowance that may apply, thus it is generally better to make future long-term investments via a tax efficient wrapper in France, such as an assurance vie. 

Cross-border tax is inevitably complicated and subject to changes. In this article I have tried to give a brief overview, but you should always consider taking qualified advice before cashing in a major asset, or when considering a new investment in France.