French President Francois Hollande has eased demands on expat second home owners for capital gains tax (CGT).
Hollande claimed the current tax policy was stagnating the French property market, which is popular with expats from Britain and the rest of Europe.
The CGT exemption limit is now lowered from 30 years to 22 years – starting from September 2013.
Nikola Sarkozy’s previous government was responsible for the 30 year limit, doubling the threshold from 15 years to 30 years in February 2012, which Hollande now admits was an error.
The policy dissuaded British expats from selling properties – especially older expats who had owned a property for many years and seen a big increase in the home’s value.
Double taxation
CGT for British expats with a home in France is a double-edged sword.
Although the French tax policy is more relaxed, HM Revenue and Customs demands British taxpayers with homes in other countries pay CGT in the UK.
For higher rate taxpayers, the tax rate is 28%, while basic rate taxpayers have a CGT rate of 18%.
Both can apply an annual exempt amount and some buying and selling costs to the sale price.
CGT is paid in the UK on the market value of the property on disposal of all or part of the property unless the transfer is to a spouse or civil partner.
A double taxation treaty is in place to make sure the same money is not taxed twice, so if CGT is paid in France, the amount is credited against any tax due in the UK.
CGT planning for expats
Likewise, the French tax authority will also take a share of any UK property sold by British expats now tax resident in France.
British expats should note that if they can prove they are no longer resident in the UK, their property disposal is exempt from UK capital gains tax.
British expats should take advice on their tax residence when considering disposing of homes in the UK or overseas.
Simply leaving the UK for a few months may make someone an expat, but does not necessarily make them non-resident for tax purposes.
The interaction of British and French CGT exemptions now make tax planning a necessity for older expats who no longer visit their second home in France regularly or do not have a family willing to take on the property.
