The sale of a property sometimes generates a capital gain that may be subject to taxation. Here are the cases in which partial or total exemption is possible.
A capital gain is the difference between the purchase price of a property and its sale price. This surplus may be subject to income tax and social security contributions. However, there are allowances and exemptions.
No tax on principal residence
If you sell your principal residence, the capital gain is not taxable. For the tax authorities, a principal residence is ‘the usual and effective dwelling, i.e. the one you occupy for most of the year’. If this is the case, then you will not pay tax on any capital gains realised.
Second homes taxed
Any other disposal of a property that is not your principal residence may be subject to tax. In this case, the capital gain is subject to income tax at a rate of 19% and social security contributions on income from property and similar assets at a rate of 17.2%.
The remainder of the transfer tax is made up mainly of taxes and levies that are not due.
Income tax: an exemption after 22 years of ownership
However, this taxation is mitigated by allowances for each year the property is held, which apply beyond the 5thᵉ year. For example, from the 6th to the 21st year of ownership, theincome tax allowance is 6% per annum.
In the case of a capital gain made after 22 years of holding a second home, you are exempt from the portion liable to income tax.
Social security contributions: an exemption after 30 years
Deductions for each year that the property is held also apply beyond the 5thᵉ year as far as social security contributions are concerned. So, for example, you benefit from an allowance on social security levies of 1.65% per year from the 6th to the 21st year of ownership.
Capital gains realised after 30 years are no longer subject to social security contributions.
Exceptional allowances
In addition to the standard allowances available to sellers depending on the length of time the property has been held, there are also a number of exceptional allowances on capital gains:
- A 70% allowance on the capital gain realised if the property is located in an area covered by a major urban planning operation (GOU), a regional regeneration operation (ORT) or an operation of national interest (OIN). To qualify, the purchaser of the property - a developer, for example - must undertake, if necessary, to demolish the existing buildings and rebuild one or more multi-family dwellings within a period of four years. If the new buildings include at least 50% social or intermediate housing, the allowance is increased to 85%.
- A 60% allowance on the capital gain realised if the property is located in a prime location (zones A, A bis and B1). To qualify, the purchaser must undertake to demolish the existing buildings, if necessary, in order to rebuild one or more multi-family residential buildings within a period of four years. The allowance is increased to 85% if more than 50% of the new buildings are social housing. This also applies to any capital gains realised on the sale of building land in a development zone.
In both these cases, the agreement to sell must be signed by 31 December 2025 at the latest. These allowances do not apply if you are selling the property to your spouse, your civil partner, your cohabitee, your ascendant or descendant (including those of your spouse), or to a legal entity in which you or your spouse (or an ascendant or descendant) are a partner or become a partner as a result of the sale.
Other possible allowances and exemptions Capital gains realised on the firstsale of a property other than a principal residence, such as a second home, may be exempt from income tax. Two conditions must be met: the sale price must be used to buy or build a principal residence within two years, and the principal residence must not have been owned in the four years prior to the sale. In addition, holders of an old-age pension or a mobility and inclusion card, or people living in a social or medico-social establishment for the elderly or disabled adults, may not be taxed on the capital gains from the sale, subject to income conditions. |
Translated with DeepL.com (free version)
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