C A B I N E T B R A H I N
DANSK-FRANSK ADVOKATFIRMA I FRANKRIG / DANISH-FRENCH LAW FIRM IN FRANCE
The real estate capital gain
I. Overview of the calculation of the real estate capital gain
With the real estate boom, any property sold has a good chance of generating a profit on its purchase price.
The realized capital gain is the difference between the acquisition price and the resale price, minus an allowance of €1,000 applied as a lump sum.
1) Purchase price
2) Selling price
3) Calculation
3-1) During the first 5 years
3-2) After 5 years
3-3) After 12 years.
1) Purchase price: the purchase price is the actual price plus the notary fees and the agency fees left to the buyer. Important works will be taken into account on invoice, provided that they have improved the comfort of the acquired property: various installations, enlargement, elevator, creation of bathroom, various installations. Work that has already generated a reduction in income tax (insulation work) cannot be taken into account a second time. For the same reasons, if the cost of the renovation work has been deducted from your property income, it is not possible to deduct the capital gains tax.
2) The selling price must be included by the deducted selling expenses. These are agency fees payable by the seller, the ? diagnosis made compulsory by the SRU law (asbestos, termites, lead law Carrez) or the costs of releasing the mortgage attached to the building.
3) Calculation:
The capital gain generated makes it easy to calculate the amount of tax that will be due:
Taking for example a property bought 100.000 € and resold 150.000 €, that is to say a difference of 50.000 € representing the capital gain.
3-1) During the first 5 years
3-2) After 5 years
3-3) After 12 years
3-1) During the first 5 years :
To calculate the tax, it is sufficient to apply to this difference a multiplier of 27%, i.e. 55.000 € – 1.000 € (fixed allowance) x 27% = 13.230 €.
3-2) Beyond 5 years: an annual allowance of 10% will reduce the tax proportionally to the number of years elapsed. Thus 8 years of ownership will generate in our example a capital gain of 50.000 € taxed as follows 50,000 € – 30% equals an allowance of 15,000 € for a gross result of 35,000 € – 1,000 € (fixed allowance) that is 34,000 € net taxable at 27%, thus a final tax of 9,180 € (CSG and CRDS and social deductions included).
3-3) After 12 years:
The same capital gain realized after 12 years instead of 8 years would give: 50,000 € x 7 equals 35,000 € (allowance) minus 1,000 € (flat rate) or 14,000 € x 27% equals 3,780 €. We can see that with time, the degressivity of the tax is obvious.
However, the capital gain is tax-exempt in certain cases:
It does not affect any resale beyond 15 years of ownership nor the main houses, whatever the time of ownership. Nor does it concern resales of less than 15,000 € with ? on ? appreciation of the tax services ? extension of this provision to the share of the different owners of property in joint ownership.
The same applies to dismembered properties (usufruct, bare ownership).
In principle, capital gains made after reparcelling are not concerned, nor are expropriations if the funds allocated are reinvested within the following 12 months. Finally, holders of an old-age pension or a disability card are exempt, provided they have sufficient resources and are not subject to wealth tax.
Finally, it should be noted that the notary withholds the amount of the tax from the sale price and pays it directly to the Treasury when the deed is registered.
II. The price level on the French Riviera
The real estate market in France, and particularly in the south of the country, is constantly on the rise. The latest survey by the Chamber of Notaries of the Alpes-Maritimes department (which extends along the coast from Menton to Cannes – La Côte d’Azur), published in mid-October 2006, refers to an average increase based on all transactions recorded from June 1, 2005 to May 30, 2006 of 11% for apartments and 16% for houses and villas. 17% of the buyers are foreigners; Italians account for 8%, and 4% of them are British. (Danes are not mentioned separately).
The price per square meter of an apartment on the Côte d’Azur is currently 42% higher than in other French provinces.
Since 2001, the price of apartments on the Côte d’Azur has increased by 103% in total, while the price of houses and villas has increased by 67%. As for real estate transactions with a price exceeding 700,000.00 Euros, one out of two buyers was foreign.
The report indicates that the Côte d’Azur continues to have a lower price per M2 than other European countries.
The increase is due to the small amount of land available in this department.
Generally speaking, for the period from 2005 to 2006, the Côte d’Azur notaries noted slightly fewer transactions, but at higher prices.
III. Sale of secondary residence within the first 5 years – domiciled in Denmark
For sellers domiciled in Denmark, there is currently a favorable exception: The current interpretation of the Franco-Danish double taxation agreement of 1957 stipulates that sellers of a second home in France who are domiciled in Denmark are invited to pay the tax on their capital gain in Denmark. However, as you may already know, in Denmark there is a rule of non-taxation on the sale of second homes. In this somewhat circuitous way, one can avoid paying capital gains tax. But let’s be clear: this is the situation at the moment! This is shown by a recent judgment concerning a case between France and Luxembourg.
Before proceeding with a sale, however, it is advisable to seek assistance, as councils and notaries, who are not familiar with the special Danish conditions, are quite capable of lumping together a seller domiciled in Denmark with any other European seller. Nor can we expect this rule of law to be maintained permanently.
Me Nicolas BRAHIN
Lawyer at the Bar of NICE
Nicolas.brahin@brahin-avocats.com
Diploma of Higher Specialized Studies in Banking and Financial Law
Panthéon-Sorbonne University (DESS 1997)
file to download:
061024 Price level and real estate appreciation 09.06.06.MIS
