REAL ESTATE CAPITAL GAINS TAX
The tax on real estate capital gains is calculated as follows: SALE PRICE – PURCHASE PRICE = NET CAPITAL GAIN
IMPORTANT
Determination of the purchase price
It is important to add to the purchase price the acquisition costs (either their actual amount or a flat-rate allowance of 7.5% of the purchase price), as well as the actual cost of construction, reconstruction, or extension works.
The following expenses may be added to the purchase price and reduce the net capital gain:
- Fees and compensation paid to the seller at the time of purchase
- Notary fees and taxes paid at acquisition: 7.5% of the purchase price or actual amount if supported by documentation
- Renovation expenses*: 15% flat-rate of the purchase price or actual amount if supported by invoices
- Road, utility, and infrastructure connection fees
*Not all expenses are deductible. To ensure the correct amount is declared, please seek assistance from our team.
If the property has been held for more than five years, it is possible to opt for a flat-rate allowance of 15% of the purchase price.
RATES AND ALLOWANCES
The net capital gain is determined after applying holding period allowances, as follows:
Allowance rates per year of ownership
| Holding period | Income tax allowance | Social contributions allowance |
|---|---|---|
| Less than 6 years | 0% | 0% |
| From 6th to 21st year | 6% | 7.65% |
| End of 22nd year | 4% | 7.60% |
| Beyond 22nd year | Exempt | 9% |
| Beyond 30th year | Exempt | Exempt |
GENERAL RULE
Non-professional real estate capital gains tax
Capital gains from the sale of real estate in France are taxable in France under personal income tax rules, whether received by a French tax resident or a non-resident.
Non-residents are also subject to income tax on capital gains arising from the sale of:
- Real estate located in France, or
- Shares in a property company whose assets are mainly composed of French real estate.
These principles are subject to applicable double tax treaties. As a general rule, real estate income and capital gains are taxable in the country where the property is located, but a case-by-case analysis is required.
In France, real estate capital gains are taxed at:
- 19% income tax
- 17.2% social contributions
However, after five years, a reduction in the tax base applies annually, leading to full exemption after 22 years (income tax) and 30 years (social contributions).
IMPORTANT
Additional charges may apply for capital gains exceeding €50,000, ranging from 2% to 6% of the taxable gain. Furthermore, additional contributions of 3% and 4% on high incomes may apply depending on total income (above €250,000 for single taxpayers and €500,000 for married couples).
French-source income such as rental income and capital gains is taken into account when determining the “reference income fraction”.
SPECIAL CASE
Professional real estate capital gains tax
If a business owner, shareholder of a corporate income tax company, decides to sell a property recorded as an asset of the company, a capital gain arises. In this case, capital gains fall under the corporate tax regime.
If the property is sold directly by the company, it will generate a capital gain equal to the difference between the sale price and the net book value (i.e. the residual accounting value after depreciation). This gain is taxed at corporate level, generally at the standard corporate tax rate.
To distribute proceeds to the owner, the company must pay a dividend. This dividend is then taxed at the shareholder level under the flat tax (PFU) at 30%, including social contributions, unless the taxpayer opts for progressive income tax (with a 40% allowance and 17.2% social contributions).
Holding real estate within a company can therefore be tax costly when the business owner wishes to sell the property.
If the entrepreneur sells shares instead, the capital gain (which generally includes the latent real estate value) is subject at shareholder level to the PFU at 30% (unless opting for progressive taxation). For shares acquired before 1 January 2018, the progressive option may allow a holding-period allowance.