British proprietors of holiday homes in the Dordogne tend to think that French tax is irrelevant to them. It can come as a surprise when they're told on a sale that French cgt will be payable. It comes as a further shock once they understand the circumstances with regard to deductible capital expenditure. But the real sting in the tail is having to pay somebody else to verify the figures they produce.
The basic principle
Capital gains taxes is levied on the variance between the purchase and sale prices, less allowed capital outlay. The purchase price is increased by the agency fee and notarial costs in order to give the genuine price of purchase. The sale price is lowered by expenses incurred in relationship with the sale - principally the survey costs associated with the required "seller's pack". The difference between these two figures will produce the gross capital gain.
Allowable expenditure
A vendor will be able to deduct from the gross capital increase certain capital expenditure - subject to conditions. First, the costs must relate to "construction, reconstruction, augmentation or improvement". Construction, reconstruction and enlargement are easily understood: they'll cover the extension or reconstructing of a house or building. "Construction" will extend to the installation of a swimming-pool.
The deceptive expression is "improvement" - the french word used is "amilioration". You would have believed this broad enough to cover replacement the kitchen and bathrooms. However, "improvement" is understood to be putting in equipment or elevating the level of comfort without changing the actual structure of the home. Installing an elevator, central heating or air-conditioning are recognised as enhancements, as would be the installing of a new bathroom. The refurbishment of an existing kitchen in that Dordogne property of yours may however not be eligible.
Secondly, the work concerned must have been completed by a French-registered tradesman. You can't subtract supplies you've purchased yourself even if they are to use by the tradesman. Thirdly, you must be able to deliver supporting evidence of the costs in the form of bills from the workmen involved, and bank transactions showing the payment.
If you are not able to fulfill these conditions, you can use instead a lump-sum allowance for costs of 15% of the original cost, net of agency fee and notarial costs. Deducting permitted capital expenditure from the total capital gain brings you to a net figure.
Period of ownership
There exists then a further allowance based on the period of possession. For every complete year of ownership after five years the gain is decreased by ten per cent. This means that if you own the property for fifteen years or more no tax on value appreciation will be payable within France.
Lump sum allowance
Once you have calculated the net capital increase you are eligible to deduct from it a fixed sum of 1,000 euros for each individual owner. i.e. in the event the sellers are a husband and wife they will be able to subtract 2,000 euros.
Sting in the tail
Some of our British clients, selling their Dordogne properties, find the conditions for deductible expenses not only confusing but challenging to comply with particularly where they've imported international labour or performed work on their own. Or they may simply not have retained the documents required by way of evidence. But the real sting in the tail comes with the requirement to hire a French-resident tax adviser in the situation of all sales above a threshold of 150,000 even if you are making a capital loss.
The tax consultant takes on individual liability to the French tax authorities for the correctness of the return. And it's understandable that he will charge a fee. In a recent clear-cut case that we have had, a vendor selling at a substantial cash loss has had to pay the tax consultant close to 1,000. If non-residents resent the system in the first place, the expense of a tax consultant adds salt to the wound.
The basic principle
Capital gains taxes is levied on the variance between the purchase and sale prices, less allowed capital outlay. The purchase price is increased by the agency fee and notarial costs in order to give the genuine price of purchase. The sale price is lowered by expenses incurred in relationship with the sale - principally the survey costs associated with the required "seller's pack". The difference between these two figures will produce the gross capital gain.
Allowable expenditure
A vendor will be able to deduct from the gross capital increase certain capital expenditure - subject to conditions. First, the costs must relate to "construction, reconstruction, augmentation or improvement". Construction, reconstruction and enlargement are easily understood: they'll cover the extension or reconstructing of a house or building. "Construction" will extend to the installation of a swimming-pool.
The deceptive expression is "improvement" - the french word used is "amilioration". You would have believed this broad enough to cover replacement the kitchen and bathrooms. However, "improvement" is understood to be putting in equipment or elevating the level of comfort without changing the actual structure of the home. Installing an elevator, central heating or air-conditioning are recognised as enhancements, as would be the installing of a new bathroom. The refurbishment of an existing kitchen in that Dordogne property of yours may however not be eligible.
Secondly, the work concerned must have been completed by a French-registered tradesman. You can't subtract supplies you've purchased yourself even if they are to use by the tradesman. Thirdly, you must be able to deliver supporting evidence of the costs in the form of bills from the workmen involved, and bank transactions showing the payment.
If you are not able to fulfill these conditions, you can use instead a lump-sum allowance for costs of 15% of the original cost, net of agency fee and notarial costs. Deducting permitted capital expenditure from the total capital gain brings you to a net figure.
Period of ownership
There exists then a further allowance based on the period of possession. For every complete year of ownership after five years the gain is decreased by ten per cent. This means that if you own the property for fifteen years or more no tax on value appreciation will be payable within France.
Lump sum allowance
Once you have calculated the net capital increase you are eligible to deduct from it a fixed sum of 1,000 euros for each individual owner. i.e. in the event the sellers are a husband and wife they will be able to subtract 2,000 euros.
Sting in the tail
Some of our British clients, selling their Dordogne properties, find the conditions for deductible expenses not only confusing but challenging to comply with particularly where they've imported international labour or performed work on their own. Or they may simply not have retained the documents required by way of evidence. But the real sting in the tail comes with the requirement to hire a French-resident tax adviser in the situation of all sales above a threshold of 150,000 even if you are making a capital loss.
The tax consultant takes on individual liability to the French tax authorities for the correctness of the return. And it's understandable that he will charge a fee. In a recent clear-cut case that we have had, a vendor selling at a substantial cash loss has had to pay the tax consultant close to 1,000. If non-residents resent the system in the first place, the expense of a tax consultant adds salt to the wound.
About the Author:
It is very clear that the Dordogne region of France cannot be beaten. Why don't you check out a variety of Dordogne Property and dream about that perfect holiday hideaway? The website of MCM Dordogne Property: www.riberacproperty.com has an extensive selection of properties available just waiting to tempt you into fulfilling the dream.
Ingen kommentarer:
Send en kommentar