Each week Sharon Scott of local estate agency 2 Valleys Properties shares a really useful, interesting and helpful guide to ex-pat life in the mountains. You’ll find the full back collection of Sharon’s blogs on our website, and on Sharon’s Facebook page.
This week, I am covering capital gains for second home owners.
Firstly, what is a second home and what is capital gains?
Your primary residence is the one where you declare your income tax and where you live more than 6 months of the year. If you do not declare your income tax from your second home, then when you come to sell it, you must pay a tax on any profit (capital gains) you make.
New rules about capital gains came into effect from September last year.
The length of time after you bought your property when you have to pay capital gains has been reduced, but the actual rate of tax, stayed the same.
A reduction from 30 years to 22 years after which there is complete exemption from paying capital gains has been granted, with reductions from after 6 years of ownership.
There is a discount of 6% per year from the 6th year of ownership, with a reduction of 4% in the final 22nd year.
However, there is no change in the period over which complete exemption from social charges is granted, which remans at 30 years.
Again tapered relief is granted by way of a discount of 1,65% per year from the 6th to the 21st year of ownership, 1.6% for the 22nd year and 9% for the 23rd to the 30th year.
An extra discount of 25% for properties sold between the 1st of September 2013 and the 31st of August 2014 can also be taken into account. The discount applies to both capital gains and social charges. The dates relate to the signing of the acts authentique.
Extra capital gains
This tax applies to gains of over 50,000€, however it will also be eligible for the 25% discount. (see above)
Also if there are multiple owners, the total gain is divided between the owners. For example 2 joint owners who make 99 000€ of capital gains would not pay the extra tax. The tax amount goes from 2% for gains of between 50 001 and 60 000€ and up to 6% for amounts of between 250 001 and 260 000€.
When you sell your house, you will anyway be appointed a fiscal representative who will validate the tax charge. This is organised by the notaire.
Things you can deduct from your capital gains in order to pay less tax
With relevant proof (bills etc.) you can take off any costs relating to the purchase of the property (agency commission, surveys etc.)
The amount of the TVA paid
The amount you paid for the property in the first place plus the notaires fees (calculated at 7,5% if the amount cannot be justified)
Any renovation or construction work carried out on the property (again with proof/bill from an artisan) You cannot deduct any DIY work carried out on the property.
Any costs paid for access or for water/sewage connections.
So how much is the percentage of tax and social charges on the profit?
The capital gains tax is 19% and the social charges tax is 15,5%, making a total of 34,5% on any profit made (after deductions as explained above).
As you can see, this is a very complicated system and the amount of capital gains is different and very personal to every second home owner. It depends on how long you have had the property, what work you have had done on it and whether you have had registered artisans to do the work. I would always advise people to consult a notaire who will be able to work out exactly how much you have to pay. Please do not ask myself or any other estate agent. We can only advise as to the method by which it gets worked out, but it is not our line of expertise!
Just make sure you keep any bill relevant to your property, however irrelevant it might seem.
Well, enjoy the sunshine and good luck to France and England in the World cup, they’re going to need it!