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Leaving France and Selling up? Surprise tax when you sell your French home.

Please note that the information herein is of a general nature and you should not act or refrain from acting on it without professional advice on the specific facts of your case. No liability is accepted by the author or Sykes Anderson Perry Limited in respect of this article. Law is a complex subject and the above is a basic outline only and is intended only as a general guide. Nothing herein should be construed as an opinion on Brexit.

For former French residents selling up and returning to the UK there can still be a surprising French tax and social charge. This can arise if their former principal residence in France has not been sold whilst they were still French residents but is only sold after they return to the UK.

Constitutional Court – Taxable and Social Charges

Normally a main residence in France is like in the UK exempt from capital gains tax and in France also social charges. However in a recent French case in France’s constitutional court (Décision n° 2017-668 QPC du 27 octobre 2017) the court decided otherwise. The court decided that a former French resident who after leaving France sold a house which had been his main residence in France could legally be assessed to French capital gains and social charges on the gain. The court decided that it was constitutionally acceptable to tax a French non-resident but not a French resident. The decision is deplorable and severely prejudices UK nationals who may have to leave France for health or family reasons without selling their former main residence.

Administrative Court Versailles – EU law prevents France taxing or levying Social Charges

There has however been a further decision of the Administrative Court of Versailles (n°1503365 du 26 juin 2018) which is more helpful. The taxpayer couple had both left France for China by September 2013. They sold their main residence in France in February 2014 and were assessed to capital gains tax and social charges on the same. The court referred to the constitutional courts earlier decision in which the tax code was held to be valid as the code could tax people differently according to their circumstances. However the court then referred to the right to free movement of capital within the EU. The legislation was a hinderance on them selling their home and then investing the proceeds within the EU. Accordingly they found in favour of the tax payer. This is a welcome development though it is not clear whether the French Tax Authority accepts the position.

Conclusion

The law here is still not clear. If you are leaving France the best advice is to sell your main residence before you leave France. If you have to move out then it is best to remain a French resident until the sale completes and to progress the sale as fast as you can. There is the additional complication after Brexit that you may have to appoint a French Tax Agent to agree your capital gains and social charge liability and they will withhold any disputed tax from the sale proceeds.

August 2018
David Anderson
Solicitor-Advocate and Chartered Tax Adviser