Buyers and Owners in France can breathe sigh of relief at new CGT structure

23rd September 2013

After more than a year of uncertainty, the recently announced new taper relief system for French CGT finally puts non resident buyers and owners in a better position.

The new system, which operates under the new reduced exemption term of 22 years (down from 30), is now in place and is applicable for any capital gain made from now and also backdated to 17th August 2012.

The new exemption period and taper relief system, combined with the variations of social charges make Hollande’s new system quite complicated, which is historically typical of socialist presidents. Yet despite its complexities the recent changes have definitely made things more favourable for non resident investors.

Previous taper relief system on the 19% CGT over 30 years:

Under 5 years of ownership:       No reduction

5th to 17th year of ownership:      2% annual reduction

18th to 24th year of ownership:    4% annual reduction

25th to 30th year of ownership:    8% annual reduction

After 30 years of ownership:    The sale of the property will be exempt from CGT

 New system on the 19% CGT over 22 years:

Under 6 years of ownership:       No reduction

6th to 21st year of ownership:     6% annual reduction

22nd year of ownership:             4% annual reduction

After 22 years of ownership:      The sale of the property will be exempt from CGT

So the new system is again designed to prohibit any short term sales or flipping in order to protect the market. For the traditional non-resident BTL investor or second home buyer with plans of circa 15 year ownership the new system is more beneficial. For example, on the previous system if an investor sold after 15 years a 22% reduction on their CGT exposure would apply, but with the new system the reduction is 60% for the same period, so quite a saving.

Plus Additional Supplementary CGT Discount - for limited period

These changes will give vendors who have been opting for a wait and see approach more wiggle room on their prices and will provide more liquidity to the market (this is one of the main reasons why the No of transactions in France dropped by 25%). Also, the government is pushing a supplementary CGT discount to further boost this - 25% CGT reduction for properties sold between 1st September 2013 and 31st August 2014. The discount applies to both capital gains tax and the additional social charges.

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