When purchasing an asset that is expected to appreciate in value, it is crucial to consider the capital gains tax in France. Understanding how your gains will be taxed when you decide to sell your investments is essential, in order not to face important financial issues.
Like most countries, France imposes a capital gains tax (CGT) on the disposal of assets that result in a monetary gain. However, not all gains are subject to the same tax treatment. The taxation of movable/intangible assets, such as shares and bonds, differs significantly from that of immovable/tangible assets, such as property.
How are investments like shares and bonds taxed?
Gains from securities, such as shares, corporate bonds, and loan stocks, are not subject to « capital gains tax » but are taxed as investment income, along with bank interest and dividends.
The fixed rate is 30%, inclusive of the tax component (12.8%) and social charges (17.2%).
This new system represented a significant improvement for higher earners compared to the previous regime.
Lower earners have the option to have their investment income taxed at the progressive income tax rates. In this case, 50% of the gain is tax-free after two years, increasing to 65% for shares held for eight years. Additionally, social charges (prélèvements sociaux) at 17.2% will apply.
If you are covered under the health system of another EU/EEA country, social charges will be reduced to 7.5% regardless of whether your investment income and gains are taxed at the progressive rates or the flat tax.
Will I be subject to capital gains tax when selling my primary residence?
The sale of your primary residence in France is exempt from capital gains tax.
This exemption applies regardless of how you use the proceeds, but the property must be your main residence at the time of the sale. It is generally recommended to spend at least 8 months a year in the property so it can be considered as your main residence.
What about other properties?
The standard capital gains tax rate for selling property is 19% (+ social contributions called “prélèvements sociaux” at a rate of 17,2%). However, progressive surcharges ranging from 2% to 6% are added to gains over €50,000, calculated after applying the holding deduction explained below.
Besides the main home exemption, there may be other exemptions. If you receive a state pension and your wealth and income are below a certain level, you may avoid capital gains tax on property. Similarly, if you reinvest the proceeds in your primary residence and have not owned one in the previous four years.
In any case, a relief system reduces capital gains tax based on the duration of property ownership. The relief starts from the sixth year of ownership, and after 22 years, no capital gains tax is due at all.
Are social charges applicable to property gains ?
Gains from the sale of property are subject to an additional 17.2% in social charges (although this is reduced for UK/EU tax residents selling French real estate).
Similar to the capital gains tax, a relief system reduces the social charges by 1.65% from the sixth year and by 9% from the 23rd year, with complete exemption after 30 years.
Since most of the relief occurs in the last seven years, many individuals have more significant social charge liabilities than capital gains tax liabilities.
What about movable tangible items like jewelry and art?
Works of art, collectibles, antiques, jewelry, yachts, vintage wines, racehorses, etc., are typically subject to capital gains tax if the sale exceeds €5,000. Precious metals are always taxable.
The tax rate amounts to 11% of the asset’s value for precious metals and 6% for jewelry, art, antiques, and collectibles, plus an additional 0.5% for social charges.
Alternatively, you can choose to be taxed under the standard CGT tax regime, where gains are taxed at 19% (plus social charges). However, a relief system applies, reducing the tax liability to zero after 22 years.
Cars, household goods, and furniture are not subject to capital gains tax unless they qualify as antiques/art.
Are there any steps I should take before moving to France ?
It is essential to review and adjust your financial affairs for your life in France. If possible, it is advantageous to do this before you move.
What about leaving France ?
Please note that France imposes an « exit tax, » which essentially functions as capital gains tax even if you do not sell the asset.
This tax applies when an individual who has been a resident in France for six of the last ten years leaves the country, provided their total shareholdings are valued at over €800,000 or they own more than a 50% share in a company. The 30% tax is levied on the potential gains on the day before the individual departs, even if the shares have not been sold, and no actual gain has been realized.
However, this tax can be deferred (until the shares are sold or reimbursed, etc.) if the individual moves to an EU or EEA member state or to a third country with a tax information and administrative assistance agreement, and the move is for professional reasons. Deferral may also be granted in other situations.
Consider beyond capital gains tax
While reducing capital gains tax may be your primary concern, it is also important to think ahead regarding what you intend to do with the proceeds. If you are selling a property, do you plan to reinvest the capital in a new one? If you are selling shares or bonds, will you spend the money or reinvest it? When considering investment of the capital, take into account how investment income and future gains will be taxed and explore actions you can take now to minimize this tax liability.
It is for instance possible to freeze capital gains on shares selling provided that you prior set up a holding company.
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MFL registered lawyers remain at your disposal should you have any queries regarding your capital gains treatment in France. MFL will provide you with the best lawyers to handle your situation and secure your interest.