5 May 2022 / Insight posted in Articles
If you are a British citizen letting a second home or having sold a property in France since 1 January 2021, you may be entitled to a refund of French taxes paid.
Before Brexit, UK residents owning a second home in France paid a standard social levy at 7.5%. This levy is charged on the net rental income and capital gains of the second property and both French and non-French citizens pay it.
When the UK left the EU on 1 January 2021, France imposed a higher rate of 17.2% on British citizens owning French second homes. This significantly increased the tax burden for Brits and encouraged many to sell their properties.
However, this higher tax charge on British citizens has now been overturned and the social levy has reverted to the pre-Brexit position. More importantly, Brits who have already paid the increased tax can apply for a refund on wrongly paid taxes.
As a Brit owning a second home in France, it is certainly worth you investigating. However, as is always the case, there are certain conditions, so not everyone will be entitled to a refund.
If you need support with real estate taxes in France, our specialist Real Estate and Construction team at Moore Kingston Smith is happy to discuss your situation.
Brexit’s impact on Britishproperty owners in France
Brexit has resulted in several significant changes for British property owners in France, which has permanently shifted the landscape of cross-border property ownership. While these changes are often popular among the native population, they can be incredibly stressful for non-residents, most of whom will have little understanding of property tax in France.
Previously, UK nationals enjoyed the right to live and work freely within the EU, including France, and this extended to an easier buying and selling process. Now, you should expect to face new restrictions, which will have a clear impact on your ability to stay for extended periods.
Changes to how inheritance tax works have been a major tax shock for Brits with second homes in France, even if they were not the ones who first purchased the property. The passing of property from one person to another is not as simple as it once was, and having to do so from another country adds further complication to the matter. This is why it’s vital to have both a sound understanding of the law as well as a clear succession plan in place.
The 17.2% tax surge post-Brexit: what it means for you
The 17.2% surge refers to an increase in the overall tax liability for non-resident property owners in France, particularly concerning social contributions on capital gains. Prior to Brexit, the European Union (EU) had in place specific regulations relating to the taxation of capital gains, which is why buying a holiday home in France was so appealing to so many.
Following the UK’s departure from the EU, non-resident property owners may experience a surge in the social contributions rate on the capital gains generated from the sale of their property in France. Before Brexit, UK residents owning a second home in France paid a standard social levy of 7.5%. This was charged on the net rental income and capital gains of the second property and was the same for both French and non-French citizens.
The increase in the social contributions rate is a clear shift in policy that contributes to the overall tax burden for non-resident property sellers. This higher rate significantly reduces the amount of profit retained by the seller after the sale of the property, as well as causing a greater amount of paperwork that needs to be completed post-sale.
Recent tax overturns: implications for British property owners
The change in the UK’s relationship with the European Union has led to revisions in tax laws that can impact those holding property across borders. This can come as a tax shock for Brits with second homes in France, who may not have expected such a large capital gains tax bill, but that doesn’t mean that you are liable for the full amount, which we’ll explain later in this piece.
One significant area of concern is the French Capital Gains Tax (CGT) system. Before Brexit, British residents in France could benefit from certain tax exemptions on the sale of their primary residence. However, the overturning of EU rules has prompted a re-evaluation of such exemptions. You may now face altered capital gains tax rates and regulations, which can majority impact the profitability of property sales.
Claiming refunds for overpaid taxes: eligibility and process
If you believe you are being charged too much tax when dealing with your second home in France, you should first contact an expert. If you aren’t familiar with how property tax works in France, which many people aren’t, even if you live there permanently, the various rules and regulations can be very confusing.
When it comes to paying the French government any tax they believe you owe, you should attempt to reduce this by claiming it against any costs that have been incurred throughout your ownership. Any major activity, such as extensions or remedial work, may be deductible, but you should first consult with a tax expert who will be able to work through your expenses to ensure that you don’t end up causing further issues later down the line.
Adapting to the new tax regulations for second home owners in France
In order to ensure that you stay on the right side of France’s changing tax laws, you should ensure that you work with a professional when selling, regardless of whether you use it as a second home or operate a small business, such as a holiday let or lodgings.
While there’s little you’ll need to do before you sell, you should still aim to keep a record of any property-related expenses you incur during the duration of your ownership as you may be able to claim a reduced tax bill when the time comes to sell. This is simply one of the loopholes you have to do when paying property tax in France, but the effort could be worthwhile if done correctly.
Understanding French Capital Gains Tax for non-residents
Understanding French Capital Gains Tax (CGT) is essential if you’re a non-resident who doesn’t spend most of their time living in France. If you own property and are considering liquidating your assets, CGT is likely to be a key factor that you’ll have to contend with. French Capital Gains Tax is applicable to any profits you make from the sale of property or estates, and this has been further complicated post-Brexit.
In short, non-residents are subject to a specific CGT rate on the capital gain from the sale of French property. As of January 2022, the standard rate is 19%, with an additional 17.2% for social contributions, resulting in a total of 36.2%. However, these rates may be subject to change, and with a major election on the horizon, it’s crucial to consult official sources or tax professionals at regular intervals.
While permanent residents benefit from exemptions regarding the sale of their primary residence, non-residents do not enjoy the same privileges. However, you may be able to benefit from specific exemptions that relate to the duration of your ownership, as well as any expenses you may have incurred. If you want to reduce your liability, which can be a real tax shock for Brits with second homes, you should try to be aware of the finer points.
As a non-resident, you will likely be required to pay the CGT at the time of the property sale. The process involves withholding the tax amount and then paying it to the French tax authorities. France has double taxation treaties with several countries, including the UK. While these treaties aim to prevent individuals from being taxed twice on the same amount, once in each country, it’s important to understand what this means in order to avoid unnecessary charges.
Key considerations before buying a holiday home in France
Before buying a holiday home in France, potential buyers, including British citizens, should carefully consider several key factors to make informed decisions to account for the unique challenges you are likely to face.
Legal and regulatory framework
With the new rules for second homeowners in France now in play, it’s vital that you take time to understand the rules and requirements regarding residency for property owners. Brexit has introduced a whole new set of considerations that you’ll need to be aware of, especially for non-residents and anybody who might be a business owner or is invested in commercial ventures.
Legal assistance
It’s important to seek legal advice from professionals experienced in global real estate and how to successfully handle property tax in France. It may also be a good idea to hire a representative to handle the legal aspects of the property transaction, including the transfer of ownership, but remember to check whether they are first familiar with the French process.
Financial constraints
It’s important to establish a realistic budget and focus not just on short-term costs, such as the initial payment, but also ongoing costs such as local taxes, maintenance, and utilities. It’s also wise to monitor exchange rates and this will impact the relative value of the property.
Tax implications
It’s important that you take time to fully understand how local property taxes work in your specific area – this can vary from region to region. You should pay close attention to capital gains taxes as you will likely profit from any sale, either now or in the future.
Location and accessibility
When you’re in the market and are interested in buying a holiday home in France, location should be something high on your list of priorities. And if you’re buying it with the intention of renting it out, you should consider where tourists want to visit. As business decisions go, this is essential.
By carefully considering the factors above, it is possible to be living in France after Brexit. While you may face unique challenges that arise from Brexit, it is possible to still enjoy owning a property abroad. How you go about paying tax on second homes in France may seem confusing, and it is a key factor, but it’s certainly not a deal-breaker.
How Moore Kingston Smith can assist with your real estate queries
Consulting with experts and professionals is advisable to navigate the specific nuances of the French real estate market. For those visiting or living in France after Brexit, this can be difficult to navigate, even if you’re familiar with how these processes typically work, which is why we recommend speaking to an expert who is familiar with French tax on second homes. Moore Kingston Smith is here to provide expert insights and professional guidance, so get in touch to discuss how we can help. If you have a real estate query, whether in the UK or any other country, our extensive worldwide network Moore Global can help, so please get in touch.
