The capital gain tax does not concern main residences
First thing to know, and not the least: the seller does not have to pay any capital gains tax if the property sold is his main residence. The exemption is total, regardless of the sale price of the property. It concerns the accommodation and all of its outbuildings: garage, courtyard, garden, parking space ... As an owner, you have the right to sell your accommodation and move until your property is sold. You have one year to transfer your property from the day of your move, in order to benefit from this exemption.
Good to know: The tax on the real estate gain does not concern either the spouse, the partner or the partner of Pacs of the seller when the latter remains in the transferred property, provided that a divorce or separation is the reason for the assignment.
Unlike primary residences, secondary residences are subject to capital gains tax. Also affected are rental properties, shops, land (including building land) and vacant accommodation. You will also have to pay this tax if you are selling shares in a real estate investment company (SCPI) or in a real estate company (SCI).
Good to know: The SCPI and SCI are instruments of wealth strategy which make it possible to prepare the transmission of a property and to benefit from tax advantages.
The sale of the principal residence is the example which best illustrates the exemption from the tax on real estate appreciation. There are however other situations which lead to an exemption:
Small sales: this term designates transactions below 15,000 euros.
- The first times: this scenario is for people who sell their second home and who have not owned their main home at least in the 4 years preceding the sale. Another condition is essential to be exempt: become the owner of your main residence within 2 years from the transfer of the second home.
- Certain populations whose resources do not exceed the fixed ceiling, and who do not pay the property wealth tax (IFI): people with disabilities and the elderly who have resided in a medical or specialized center for less than 2 years, disabled people and retirees.
- An expropriation motivated by public utility provided that at least 90% of the total compensation received is invested in the purchase of real estate or works (construction, enlargement).
- A property held for several years.
- In some cases of exchanges or consolidation in urban or rural areas.
- In certain cases when the seller does not reside geographically or for tax purposes in France, although the property sold is located in France. A special tax regime exists for these cases.
The game of abatements is a complex mechanism. That said, there is a golden rule that you must know as an owner before the transfer, and that the real estate agents of Barnes Mont Blanc will take care of reminding you: the holding time of your property is intimately linked to taxation. If you sell your house, apartment, local or land after 10 years, the capital gain tax will be lower than if you sell your property 5 years after its acquisition.
This principle explains why you can be exempt from taxation if you have owned your property for a long time. How long ? 22 years old. If the transfer of your property takes place at least 22 years after its acquisition, you will not pay any capital gains tax. In practice, the income tax allowance is 6% from the 6th year from the year of purchase of the property. This rate drops to 4% from the 22nd year. At this time, the allowance will be 100% and you will therefore be exempt from the tax on real estate gain if you decide to sell.
Good to know: Do not confuse the exemption from income tax on real estate appreciation effective after 22 years, and the exemption from social security contributions effective 30 years after the acquisition of the property.
What tax rate for capital gains?
After the abatements, the net capital gain is subject to a total tax rate of 36.20%: income tax (19%) and tax levies (17.20%). When the capital gain is greater than 50%, an additional tax is added (between 2 and 6% of the capital gain after deductions). This surcharge does not concern building land.
Important: When there are several sellers, the threshold of € 50,000 is calculated individually. This is the quota that serves as a reference for calculating the surcharge. If a married / PACS or cohabiting couple sells their house with a net capital gain of € 70,000, each person's share is € 35,000. Since this quantity is below the tax threshold, neither of them will have to pay tax on high capital gains.
How to calculate the tax rate for capital gains on real estate?
The calculation of the real estate gain revolves around the difference between the purchase price and the sale price of the property (the one that appears in the deed of sale). This calculation is actually a little more complex, since certain costs must be added to the purchase price (notary fees, agency commissions, donation rights, work carried out for goods held for at least 5 years, etc.) and deduct others from the sale price. It is possible to slightly reduce the sale price by deducting other costs such as mandatory diagnostics.
In January 2007, you paid € 250,000 for the purchase of an apartment as a second home. You have carried out enlargement or improvement works for a total amount of € 15,000. In May 2019, you sold your property for € 350,000.
Fixing of the sale price: € 350,000 - € 1,000 of compulsory diagnostic costs = € 349,000.
Fixing of the purchase price: € 250,000 + 8% of acquisition costs + 12% of work package = € 250,000 + € 20,000 + € 30,000 = € 300,000.
Calculation of the net taxable capital gain: € 349,000 - € 300,000 = € 49,000.
Between the purchase (2007) and the sale (2019), you owned your apartment for 12 years. From the 6th year onwards, you benefit from an income tax reduction of 6%, for a total of 42%. Taxable base with rate of 19%: € 28,420.
You also benefit from a reduction in social security contributions of 1.65% after the 6th year, for a total of 8.25%. Taxable base with a rate of 17.2%: € 44,957.50.
Calculation of capital gains tax: € 5,399.80 (28,420 x 19%) + € 7,732.69 (44,957.50 x 17.2%) = € 13,132.49.
And after ?
The notary is the professional responsible for making the declaration of capital gain and paying the tax on the seller's account. If you have just sold, do not forget to indicate the amount of the real estate gain on your additional income tax return. The tax is deducted only once, and will be taken into account for the calculation of your reference tax income.
Would you like to buy a new home? Find out everything you need to know before investing in new. Have you just sold a property at a higher price than the purchase price? Read our detailed article on real estate capital gains tax.