Finance in France: Limiting the impact

So now you are selling after building that fine extension and fully refurbishing the property.You have photographs of before and after to prove it, and a few scrappy estimates from artisans who have since disappeared.You did quite a lot of the work yourself and have a pile of cash till receipts.You have also rustled up a few invoices for paintwork.You lived in the property for two years so you will anyway claim principal private residence exemption.

Resident in France?

Oh dear, did you pay any French income tax during those two years in France? No? Well then, you can’t say in the same breath that you’re resident in France for capital gains tax but not resident there for income tax. No income tax, no CGT exemption. It’s as simple as that.Your first argument has been shot down in flames.

Invoices

Photos are not acceptable. Estimates are not acceptable. Cash till receipts are not acceptable.You must produce contractor invoices. Only expenditure on construction, reconstruction, enlargement or improvement is taken into account. Expenditure on renovation is not accepted. Therefore the paintwork invoices cannot be accepted.

Resident in the UK? Are you now resident in the UK? You must obtain a certificate of fiscal residence in the UK from H.M. Revenue and Customs, then you will pay French CGT at 16%. If you don’t produce the certificate, the rate is 33.33%, i.e. more than twice as much.

H.M. Revenue and Customs will be interested to know what property you’re selling in France and at what price, as you will be liable to UK CGT, computed in accordance with UK rules. The UK gain must be calculated in sterling in every respect.

Double tax treaty

If you’re a 40% taxpayer in the UK, the tax paid in France will usually be less than the UK amount. Under the double tax treaty, you can deduct the tax paid in France from the UK charge to tax. So it will usually be the case that the amount of tax paid in France emerges in the end as cash neutral to you.

Is your resale price in France more than €150,000? Yes, it is. Well then, you must compulsorily appoint an accredited representative in France for the purposes of French CGT. The representative gives a guarantee, unlimited in amount, to the French tax administration that if the administration subsequently finds that any further CGT is due, the representative will pay it. The representative will charge you 1% of the price plus French VAT, currently at 19.6 %.

Genuine improvement?

After rummaging around, you find a hefty invoice for refurbishing the kitchen. The representative says that the work represents a mere embellishment, not an improvement.You don’t agree. Initially, the invoice won’t be taken into account. But you can ask the representative to put the matter up to the French tax administration.

The representative will do so without any further charge to you. Now you’ve found invoices for a genuine improvement: the foundations and masonry for the extension. Good. But you must also prove, by means of bank statements, that you paid the invoices. Mere receipts from the contractors are not enough. No bank statements, no taking into account.

Your invoices are in English. Hopeless.You will have to get them translated into French by a sworn translator in France. A translation done in England is not good enough.

The system is rigid, strict and tough. Be prepared.You’re going to have to cough up. That is what the accredited representative means when he sends you his ‘distinguished salutations’.

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