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The French real estate capital gain for UK tax residents

When a UK resident sells property in France and realizes a capital gain, bilateral tax agreements play a crucial role. These agreements dictate how income is taxed for individuals conducting financial activities across borders. Generally, income from immovable property is subject to taxation in the country where the property is situated. However, the treatment of capital gains from property sales may vary.

According to the Franco-British tax treaty, a UK resident’s capital gain from selling property in France remains taxable in the UK, with a credit equivalent to the tax paid in France. This mechanism prevents double taxation. It’s important to understand that the tax credit cannot exceed the UK tax liability.

Capital Gains Calculation in France

For those unfamiliar, let’s briefly outline how capital gains on property in France are computed:

Selling price of the property

(-) Selling expenses

(-) Purchase price

(-) Acquisition expenses

(-) Renovation costs

(=) Gross capital gain

Additionally, there’s an allowance for the holding period exceeding 5 years, followed by income tax at 19% and social charges at either 17.2% or 7.5%, depending on the individual’s circumstances.

The Need for a Fiscal Representative

All non-EU tax residents, including UK citizens, must designate a fiscal representative to calculate their property capital gain and interact with tax authorities.

Feel free to reach out directly if you need more information on this requirement or assistance with compliance.

The Franco-British Tax Treaty

Article 14 of the treaty stipulates that capital gains from immovable property are taxable in the country where the property is located. However, Article 24 addresses the issue of double taxation, stating that these gains are subject to taxation in the taxpayer’s country of residence, after deducting taxes paid in the other country.

Consequently, you’re obligated to report your French capital gains in the UK and pay taxes on them, subtracting the tax already paid in France. If the French tax exceeds the UK tax, the difference will be forfeited.

Here’s a straightforward breakdown of the process:

Appoint a tax representative to calculate the Capital Gains Tax (CGT).

Pay the French CGT in France via the notary.

Declare the French CGT to HMRC.

Pay the UK capital gains tax on the French sale after deducting French taxes.

Practical Implications and Consequences of Non-Compliance

UK tax residents must report their French capital gains to HMRC using form SA108 before October 31 of the following year for paper submissions or before January 31 for online filings. Failure to comply results in fines, late interest, and potential penalties.

Non-compliance carries severe repercussions, including hefty penalties and heightened scrutiny from HMRC. It’s crucial to adhere to reporting requirements to avoid such consequences.

As specialists in capital gains tax, please feel free to contact us with any questions related to this matter. We collaborate with a UK firm for the British side of affairs, allowing us to assist on both sides of the channel.

French Tax Online is a tax consultancy firm specialized in foreigners investing and living in France.

A member of the Budiz Company Group, which is a French chartered accountant registered with the Order of French Chartered Accountants (OEC).

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