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TonyTax
TonyTax, Tax Consultant
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We have had our holiday house in France for 18 years. As it

Resolved Question:

We have had our holiday house in France for 18 years. As it is a second home it will be liable to CGT - but after how many years does that no long apply and how much tax would we have to pay if we sold after 20 years?
Will there also be UK CGT to pay on this same house when sold and how much?
Thanks
Rosalie
Submitted: 3 years ago.
Category: Tax
Expert:  TonyTax replied 3 years ago.
Hi.

Can you tell me how much the property cost to buy and what it is worth please.
Customer: replied 3 years ago.

WE paid approx. £55,000 for it and it is now worth approx. £300,000

Expert:  TonyTax replied 3 years ago.
Thanks.

Leave this me while I do some calculations.
Expert:  TonyTax replied 3 years ago.

Thanks.

 

FRANCE CGT

 

The French CGT system is in a state of flux right now with amendments to the rules occurring almost monthly so you would be well advised to take advice from a French tax expert.

If you can wait until you have owned the property for 22 years, you will escape French CGT altogether. Clearly, that may change in the future so you will need to bear that in mind. For 20 years of ownership, you are entitled to a discount of 36%. If you sell the property between 1 September 2013 and 31 August 2014, you will benefit from a further discount off the gain of 25%. For 20 years of ownership, you are entitled to a discount of 36% so you can increase that to 61%. Take a look here for more information.

If you are UK resident and a British national, you are liable to UK tax on your worldwide income and gains but you will be able to offset any CGT you pay in France against your UK CGT liability. I'm afraid, however that the 15.5% French Social Charge will not be deductible from your UK CGT liability as it isn't CGT. Take a look here for some commentary on this topic. In addition to the basic French CGT, there is a supplementary tax on larger gains which you can read about here.

As stated above, if by the time you sell the property, you have owned it for 20 years, you will be entitled to a 36% deduction from the gain. If you each make a gain of £122,500, the 36% discount will reduce that by £44,100 to £78,400. The net gain of £78,400 will be taxable at 19% CGT plus 15.5% Social Charge, a total of 34.5% (£14,896 CGT + £12,152.00 Social Charge = £27,048). For disposals after 1 January 2013, an additional tax is levied on larger gains as computed for the basic tax charge. For a net gain of £78,400 each, the supplementary tax charge will be 2% (£1,568). Take a look here and here for more information on how the French CGT system works.

Your French CGT charge will be about £16,464 (£14,896 + £1,568) and the Social Charge will be about £12,152, a total French liability of £28,616 for each of you.

If you sell the property between 1 September 2013 and 31 August 2014, the taxable gain will be £47,775 for each of you (£122,500 - £74,725 (61% discount) = £47,775). That will save you £12,134 (19% CGT £5,819 + £4,747 Social Charge + £1,568 Supplementary CGT).

UK CGT

As for UK CGT, the first £10,900 of gains are exempt from CGT for each individual with the excess being taxed at 18% or 28% or a combination of the two rates depending on the level of their income in the tax year of disposal.

If the gain is £245,000 and is split between two people, you each have a gain of £122,500. The first £10,900 will be exempt so you will each have a taxable gain of £111,600.

There are two rates of CGT, 18% and 28%. The rate or combination of rates you will pay will be dependent on the level of your income in the tax year of disposal of the property. Take a look here to see how CGT works and how to take account of your income. THe CGT will be somewhere between £28,047 (assumes no income after deduction of personal allowance) and £31,248 for each of you. The French CGT will be deductible from your UK liability.

I hope this helps but let me know if you have any further questions.

TonyTax and other Tax Specialists are ready to help you
Expert:  TonyTax replied 3 years ago.
I have to go out for a while so I will deal with any queries you may have on my return.

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