The legal column
Charlotte Macdonald discusses why it is important to consider capital gains tax in both France and the UK when selling or giving away a French property as a UK tax resident
WHAT EXACTLY IS CAPITAL GAINS TAX? In the UK, capital gains tax (CGT) is assessed when you sell or give away a property that has risen in value since the date that you acquired it. If you are a UK tax resident,
you will pay CGT on your worldwide gains, not just those in the UK (unless you are a relatively recent arrival in the UK and claim the remittance basis). So, if you own a property in France that you intend to sell or give away, you should keep this UK tax in mind. UK CGT on residential
property is charged at 20% or 28%, depending on whether you are a basic or higher rate taxpayer. Although there are a number of similarities between CGT charged in France and the UK, there are also a number of important diff erences.
DOUBLE TAX TREATY There is a double taxation treaty (2008) between France and the UK that confi rms which country can levy CGT on a property and, where double taxation arises, how it can be mitigated. The treaty confi rms that CGT can be levied by the country in which the property is situated. So, if a property in France is sold for a profi t, the French authorities have the right to tax that profi t. However, as a matter
of general tax law, a UK resident will be taxed on their worldwide gains. To reduce
double taxation, the treaty states that any CGT charged in France can be off set against any UK CGT charged on the same profi t. For example, Erica, a UK
resident, sells her French holiday home for a profi t of £100,000. She has £18,000 of CGT to pay in France and £20,000 of CGT to pay in the UK. Erica can credit the £18,000 already paid in France against the £20,000 payable in the UK. This means that she only has to pay £2,000 to HMRC.
GIFTING One of the largest diff erences in how CGT is applied in the UK compared to in France relates to gifting. In France, CGT is not assessed when making a gift, whereas in the UK it is. Although by giving property
away you are not making a profi t, HMRC will still look at the rise in the value of the property since the date of acquisition compared to its open-market value at the time it is given away. For example, Henry, a UK
resident, bought a holiday home in Normandy in 1990 for the equivalent of £25,000. In 2023, the property is given an open-market valuation of £100,000. Henry wishes to give the property to his son. There wouldn’t be any French CGT to pay if Henry gives the property away, but for UK tax purposes he would be treated as having made a ‘deemed disposal’
84 FRENCH PROPERTY NEWS: March/April 2023
“Capital gains tax can be
levied by the country in which the property is situated”
of the property. The gain of £75,000 in the value of the property would be assessed for UK CGT and this sum would be payable by Henry.
PRIVATE PRINCIPLE RESIDENCE RELIEF Both in the UK and in France, there is an important relief against CGT if the property you are selling is your main home. In the UK, this is known as your private principle residence
relief (PPR), and it confi rms that you will not pay any CGT on any gain realised on the sale of your primary home. This means that if you own
one property in which you live, you will not pay CGT if you sell it, even if its value has gone up signifi cantly since you fi rst acquired it. PPR can be apportioned to
your home during the time in which you lived in it. For example, Emma’s main home
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