Selling your French property?

Sean O’Connor runs though some potential capital gains tax scenarios…

What about selling your property just now? At the time of writing, the euro is very high against sterling. Property values in the UK have tumbled. There is a tidy sterling sum to be made by selling up in France, so as to bump up your cash position in the UK. Might the euro itself collapse later this year? If yes, perhaps you should get on with selling straight away. This is a matter of how your hunches feel. In what follows, I look at some tax scenarios that could be coming your way if you do sell. UK resident You purchased a French property on 20 February 2004 for €200,000, and now you can sell it for €300,000. The French property is a holiday home. Throughout, you have remained resident in the UK. You will have to pay French capital gains tax (CGT). In order to bring down the rate from 33.33% to 16%, you will have to get an attestation from your UK tax inspector as to fiscal residence in the UK. I will be very broad brush here because the actual calculation of French CGT will involve taking costs of purchase and costs of sale into account, and also costs of any improvements. On a rough and ready basis, your gain in France is €100,000 which at 16% means you pay €16,000 to the French tax man. The sterling-euro conversion rate on 20 February 2004 was 1.4859. Let us forward guess that the rate on the date on which you sell will be 1.15. Again on a broad-brush basis, in sterling terms you purchased at �134,598 and you are selling at �260,869, a sterling gain of �126,271. You pay UK CGT on this at 18%, less the amount of tax you have paid in France. So you pay �22,728 minus the €16,000 paid in France taken at the rate prevailing on the date of your sale, i.e., in this example, 1.15 making �13,913 leaving �8,815 payable in the UK. France tax resident You purchased on the same date, 20 February 2004, at the same price, €200,000, but you went to live in France and have paid French income tax for at least two years. The French property is your principal private residence. In this case, you don’t pay any French CGT at all, because you get the principal private residence exemption. Bearing in mind that the UK tax year runs from 6 April to 5 April, provided that you have been non-resident for at least five complete UK tax years, you will be exempt from UK CGT. But if you have not been non-resident for a full five UK tax years, you will have to pay the full amount of UK CGT at 18%. France non-tax resident Same as before, and you went to live in France as in the second scenario, but you have not paid French income tax for at least two years. In this situation, you will have to pay French CGT because you cannot in the same breath tell the French taxman that you are not resident in France for his income tax but you are resident there concerning his principal private residence exemption. As already explained, if you have been non-UK resident for at least five UK tax years, you will be exempt from CGT in the UK. But you will have fallen into a tax trap, because you will then not be able to get the attestation as to fiscal residence in the UK so you will have to pay French CGT at 33.33%. Note that the attestation as to fiscal residence is required for the tax year of disposal. It may, therefore, be worth your while to come back to the UK for at least a bit of the forthcoming UK tax year commencing on 6 April 2009, so that you can get the attestation as to UK fiscal residence, and hence only pay 16% CGT in France. But in that case, of course, you will have to pay UK CGT at 18%. Get your calculator out, you need to do some maths.