This column is by Rob Kay, a senior partner at Blevins Franks financial advice group (blevinsfranks.com). Rob has decades of experience advising UK nationals in France and features regularly in the media discussing the issues affecting expatriates here.
Buying and selling property is often a major part of relocating from one country to another. Or perhaps the time has come to downsize your home or move to a new area in France.
Whatever the reason for the move, many people underestimate the costs involved.
If you sell one home to buy another, the combined transaction costs can make a significant dent in your budget.
For this reason, before buying a home you should carefully consider its location and long-term suitability.
It is also a good idea to research ownership methods in France, which can impact your estate planning options and inheritance tax liabilities.
Different types of marriage contracts also affect how property is owned and, in turn, succession and taxation.
Read more: Nine financial points to consider when retiring in France
How does capital gains tax work in France?
Your home is exempt from capital gains tax if it is your principal residence at the time of sale. There is a 12- to 18-month grace period, but watch the timing and do not rent it out.
Other property gains are taxed at 19% plus surcharges from 2% to 6% (for gains over €50,000), with social charges of 17.2% for those without Form S1 (7.5% with the form).
Both levies are reduced the longer you own the property. You reach full capital gains tax exemption after 22 years.
With social charges it takes 30 years, with the major reductions weighted towards the last seven.
I live in France and own UK property. Where will I pay CGT?
You are assessed for tax in both countries. The double tax treaty prevents you paying tax twice, but you pay the higher amount.
For the UK liability, only gains made since April 2015 are taxable. The capital gains tax annual exempt amount has dropped from £12,300 to £3,000 over the past two years; we now wait to see if any CGT reforms are included in the budget at the end of October.
Read more: Capital gains tax – what expats in France need to know
Does wealth tax impact me?
Wealth tax impacts you if your household’s real estate assets amount to over €1,300,000. This includes residences (the main home is calculated with a 30% reduction), holiday and investment properties, owned directly or indirectly.
Residents are assessed on worldwide property, though property outside of France may be exempt for your first five years of residence.
What tax do I pay if I rent property out?
Taxable rental income is calculated on the income and expenditure pertaining to the year in question, and taxed at the scale rates of income tax (11% to 45%), plus 17.2% social charges (7.5% for S1 holders).
French residents renting out UK property, and UK residents renting out French property, are liable to tax in both countries. You get a tax credit to avoid double taxation, but the UK does not give credits for social charges.
Is the main home subject to French succession tax?
Anyone other than your spouse/Pacs (civil) partner will face this tax.
If the property is also the main home of the beneficiary, they get a 20% discount.
Your beneficiaries’ liability depends on who they are. Rates start at 5% for children but non-relatives pay a flat 60%; allowances range from €100,000 down to just €1,594.
You can use a usufruct to give away assets to children while retaining a lifetime right to live in the property, which helps maximise allowances and lower tax rates. Analyse the pros and cons and suitability for you.
What about succession law?
Children are protected heirs in France and must inherit 50% to 75% of your estate. You can only leave the ‘freely disposable’ part to your spouse/Pacs partner (though the survivor has the right to continue living in jointly owned property).
EU succession regulation Brussels IV enables you to elect for your succession law of nationality to apply to your estate. However, under a 2021 French law, if assets located in France pass under the provisions of a country without forced heirship – such as England and Wales – protected heirs can claim the share they are entitled to under French succession law. The European Commission is seriously reviewing this ‘possible breach’ of EU rules.
There are various things you can often do to leave assets according to your wishes. For example, your type of matrimonial regime can have an impact, as can inserting a tontine clause into the conveyance.
Read more: Married couples: Are you familiar with your French marriage regime?
I would like to expand my property portfolio – what should I think about?
Weigh the tax implications of property investment against capital investments. Currently only real estate assets are liable for wealth tax. Even if this changes, compliant investment structures can significantly reduce taxation on savings and investments.
Rental income is not eligible for the flat 30% tax (20.3% with Form S1) available for other investment income. UK property falls into both French succession and UK inheritance tax nets if you are a French tax resident.
You have more control over estate planning with capital investments than property. Arguably the best succession strategy is to hold investment assets in the French savings vehicle assurance-vie. These policies stand outside succession law and assets generally pass directly to your nominated beneficiaries, making their lives easier and cheaper.
Moving away from tax and succession, remember that property is illiquid. You need to sell the whole investment if you need to release money and it can be hard to find a buyer at the right time and price.
From an investment point of view, it is impossible to predict long-term returns, but a good portfolio will spread risk across different asset types, regions and market sectors.
It is hard to get this level of diversification with property investment, unless you invest in real estate funds.
You may not be too concerned about the tax implications when buying a home, but taxation issues become much more relevant if you own other property.
Succession issues are always important, even with your home; understanding how it all works helps you act now to make the inheritance process simpler and tax efficient for your loved ones.
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.
