Capital gains tax on the sale of French property: What you need to know post-Brexit
Are you a UK resident who’s planning on selling your second residence in France? If so, be aware that the capital gains tax (CGT) rate is set to surge once the Brexit transition period concludes on 31st December 2020. Chartered Financial Planner Piers Bonnett takes a closer look at this upcoming change.
Down to the wire
At the time of writing, weeks of intensive talks between officials on the matter of Brexit have failed to overcome hurdles on fundamental issues. Time is fast running out to reach an agreement before the UK ceases following EU trade rules on 31st December 2020, with Prime Minister Boris Johnson declaring that there’s a “strong possibility” of no deal.
One thing is certain, though – on 1st January 2021, Britons will lose their EU citizenship. They’ll no longer be able to enjoy the same rights when travelling to and being in the EU, including the right to free movement. Not only that, but those who have a second property in France will also be affected, as once the Brexit transition period ends, they face a sharp rise in their capital gains tax. But what will this change actually look like?
For more context, there are two sets of tax to pay in France when selling a property: CGT (19%) and social charges (17.2%). As a result of a change in law in 2019, the standard social charges rate decreases to 7.5% if you’re an EU or EEA citizen covered by your country’s healthcare system. In other words, this gives a combined total rate of 26.5% in tax at the point of sale.
However, as of 1st January 2021 and once out of the EU, UK residents will no longer be able to benefit from this exemption, meaning sellers will be faced with a total tax bill of 36.2% on the profit made from the sale.1
Exception to the rule
After the withdrawal agreement ends, it’s probable that social charges levied on gains will rise from 7.5% to 17.2% for British residents who sell their second property in France. Nevertheless, there’s always an exception to the rule, and the situation is not always clear-cut, which can cause confusion. Seeking financial and tax advice is always a good starting point to review your financial position, so as to be fully informed about the range of exemptions available to sellers.
One example is that you’re not subject to either of the French taxes on the gain if your property’s been in your possession for 30 years or more. Some people may have already chosen to get ahead of the curve and sell up in the UK, moving to France before the end of 2020 and making France their primary residence. This therefore allows them to sell their house without any CGT using the main residence exemption.
Cover all bases
In an interview with International Adviser, Joanne Leach, Senior Client Director for France at Strabens Hall, said that the levies go further than CGT and social charges, and that UK residents need to appoint a “fiscal tax representative”, which charges approximately 1% of the sale price.
“Currently, as a member of the EU, we are not required by law to appoint one, but once the UK leaves the EU, [Brits] will be obliged to make a capital gains declaration supported by a tax representative accredited by the French Tax Authority,” she adds.2
The Société Accréditée de Représentation Fiscale (SARF) [the French accredited society for fiscal representation] is one such representative which guarantees the accuracy of the calculation and the payment of the tax, and will deal with any litigation which may arise. The SARF usually charges 1% of the sale price, but you are not obliged to appoint them.3
As things stand, UK nationals can stay in France, and other EU countries, for as long as they wish. However, the Schengen Visa Info website raises the fact that this too is set to change, as most EU member states have a rule that non-EU citizens can only stay for a maximum of three months within any six-month period.
“Britons must remember the fact that the 90-day rule applies to the total number of days for all countries in the Schengen Area, and not only the stay in France. i.e. one cannot stay for 90 days in France and then travel to Germany to spend more days there.
“Violating this rule has its consequences, as those who stay in the EU more than the permitted period are fined and even deported to their countries. If the overstay is repeated, one may also be banned from entering the block for a certain period.”4
The website also mentions that the EU is set to realise its plans to increase security and make it compulsory for non-EU citizens to have travel authorisation to enter France, even for short stays. The scheme, called The European Travel Information Authorisation System (ETIAS,) is set to launch on the same day the UK leaves the EU, but it won’t be compulsory until the end of 2022.
For more information
If you are interested in discussing any of the issues raised in this article further, please don’t hesitate to get in touch on 01444 244551 or email me at Piers.Bonnett@sjpp.co.uk, and I’ll be happy to answer any questions you may have.