Tax on real estate capital gains made in the United Kingdom by a French resident

When you are considered as a French tax resident you have to declare your worldwide income (foreign income sources and French income sources), so if you have done a capital gain on the sale of a property located in the United Kingdom, it must be declared in France.

Tax on real estate capital gains made in the United Kingdom by a French resident


15/09/2020    


When you are considered as a French tax resident you have to declare your worldwide income (foreign income sources and French income sources), so if you have done a capital gain on the sale of a property located in the United Kingdom, it must be declared in France.

In order to declare this income, you have to refer to the Franco-British tax convention.

Article 14 of the convention provides that the right to tax the capital gain on real estate is vested in the state in which the property is located (in this case the United Kingdom).

In addition, article 24 specifies that double taxation is eliminated by granting in France a tax credit equal to any tax paid abroad (in the United Kingdom, therefore).

As a result of these two texts, the taxpayer who sells a building located abroad must perform a double transaction on 2048-IMM-SD form:

  • Calculate the capital gain according to French tax rules;
  • Deduct the tax paid in England on this capital gain in order to avoid double taxation.

 

I - GENERAL RULES FOR CALCULATING THE CAPITAL GAIN

  1. Capital gains exempt in France

The main cases of tax exemptions on real estate capital gains are as follows:

  • Sale of the main residence and outbuildings;
  • Sale of a home other than the main residence, if the seller uses the sale price to buy or build his main home within 2 years;
  • Property whose sale price does not exceed € 15,000;
  • Property held for over 30 years;
  • Property sold to an organization in charge of social housing (until December 31th 2022);
  • Property sold to a private operator who undertakes to build social housing (until December 31th 2022);
  • Property expropriated under certain conditions.
  1. Calculation of gross capital gain

The real estate capital gain is equal to the difference between the sale price of the property and its acquisition price.

The sale price is the price indicated in the deed. It is possible to deduct from the price, the costs incurred during the sale (for example the cost of mandatory diagnostics).

The purchase price may be increased by the following costs, upon proof:

  • Charges and indemnities paid to the seller upon purchase;
  • Acquisition costs (registration fees, notary fees). It is possible to deduct a fixed amount of 7.5% of the purchase price;
  • Expenses of works (construction, reconstruction, extension, improvement under conditions) or, in certain cases, a flat rate of 15% of the purchase price.
  1. Taxation

Abatement

The capital gain is reduced by an allowance which depends on the time during which you have owned the property.

The base is different for the calculation of income tax and that of social security contributions.
 

Reduction rate for the sale of real estate

Duration of detention

Reduction rate per year of detention

contributions

Income tax base

Base for social security

Less than 6 years

0%

0%

Grades 6 to 21

6%

1.65%

22nd year passed

4%

1.60%

Beyond the 22nd year

Exoneration

9%

Beyond the 30th year

Exoneration

Exoneration

An exceptional reduction of 70% applies in so-called "tense" areas under certain conditions.

Real estate capital gains are taxed at the rate of 19%.

An additional tax applies in the event of a taxable capital gain greater than € 50,000. The rate varies from 2% to 6% depending on the amount of the realized capital gain.

 

II - AVOID THE DOUBLE TAXATION

You must now indicate the amount of tax that was paid on this capital gain in England at the level of line number 120 commented as follows in the notice of the declaration form:

“Line 120: Capital gains realized outside mainland France or overseas departments, not exempt from tax in France in application of an international tax treaty, must be declared to the service responsible for registration to which the transferor reports in the month following the sale.

If this income has been taxed at source, a tax credit equal to the amount of French tax calculated on this capital gain or foreign tax is deductible from French tax without the latter being able to exceed the amount of French tax.

If the capital gain realized abroad is exempt from tax in France, there is no need to take out a declaration No. 2048-IMM-SD.”

This text provides two main information:

  1. The tax paid in England is deductible from the tax payable in France calculated in accordance with the process described above. If, however, the tax already paid was greater than the tax due in France, the tax credit will be capped at the amount of French tax.
  2. If the capital gain is exempt in France for the reasons described above, there is no need to file a declaration 2048-IMM-SD (even though it was imposed in England).

The declaration of capital gain is made on the form n°2048-IMM and must be signed by the transferor or by his representative. It must be completed in single copy, eventually accompanied by the payment of the tax, and sent to the tax service to which the taxpayer reports within one month of the date of the notarial act, our firm can of course accomplish this process for you.

We believe that it is preferable to enclose with this form a copy of the deed of sale translated into French. The translation can be done by yourself.

 

Then, to finish, the taxpayer must report the amount of the capital gain on line number 3VZ of his annual income tax return (2042C) entitled: “Net capital gains from the sale of buildings or movable property already taxed at 19%.”

The indication of this amount on the income tax return will not result in a new taxation of the capital gain.