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France: France Clarifies 25 Percent Real Estate CGT Break

16 August 2013   (0 Comments)
Posted by: Author: Ulrika Lomas
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Author: Ulrika Lomas

The French Government has published a fiscal instruction clarifying the precise conditions for the application of the "exceptional" 25 percent tax reduction accorded to individuals for capital gains realized following the sale of a residential property.

Forming part of plans to reform the taxation of real estate capital gains in France, to boost the housing market, the 25 percent reduction will apply to capital gains realized following the sale of a residential property or rights relating to that property, from September 1, 2013, to August 31, 2014.

The exceptional reduction will not, however, benefit individuals electing to sell building plots or the rights thereto. Nor will the tax perk be accorded following the sale of social rights relating to shares in a real estate investment fund.

Furthermore, the 25 percent temporary tax reduction will not apply in cases where the sale realized by the transferor benefits a spouse, civil partner, cohabitant, or an ascendant or descendant. The tax break will not be granted for sales to a moral entity in which the transferor, their spouse, civil partner, cohabitant, ascendant or descendant, is a partner or is due to become a partner following the sale.

Finally, the 25 percent exceptional reduction will be calculated from the net taxable base of the real estate capital gains, namely once the tax reduction for the holding period has been calculated and deducted. The 25 percent reduction will apply when determining the taxable base for both income tax and social levies.

The Government's long-awaited real estate capital gains tax reform enters into force in France from September 1, 2013. Despite the complexities, the new tax regime for real estate capital gains, other than gains derived from the sale of land for development, will be more favorable overall than the existing system. This is in terms of the amount of income tax and social levies that will be due, irrespective of the holding period of the property (after five years).

For the calculation of income tax, the Government aims to progressively increase real estate capital gains tax reductions from September 1, by 6 percent per year, from the sixth year of the holding period to the twenty-first year. A further and final reduction of 4 percent will then be accorded for the last year, bringing the cumulative CGT reduction to 100 percent. Total exemption from real estate CGT is therefore granted after a 22-year holding period, instead of 30 years as is currently the case.

When calculating the social levies due on real estate capital gains, the Government aims to progressively reduce contributions from next month by 1.65 percent per year, from the sixth year of the holding period to the twenty-first year, by a further 1.6 percent for the twenty-second year, and by another 9 percent a year until total exemption is granted after a 30-year holding period.



Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.

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