How is property capital gain calculated and its allowances for length of ownership?

From gross capital gain to taxable capital gain

Gross property capital gain equals the sale price less the acquisition price. The sale price can be reduced by certain costs borne by the seller (Article 150 VA of the CGI), and the acquisition price can be increased by costs and expenses exhaustively provided for by law (Article 150 VB of the CGI).

The CGI provides two practical flat rates. For acquisition costs, where the property was acquired for value, the seller may retain a flat rate instead of actual costs. For work, where the property has been held for more than five years, a flat-rate for work calculated on the acquisition price can be applied without supporting documents. The percentage of these flat rates is set by law and can change: check the rate in force in the year of the sale.

• Sale price: actual price less costs borne by the seller (Article 150 VA of the CGI).
• Acquisition price: actual price increased by acquisition costs and work, actual or flat-rate (Article 150 VB of the CGI).
• Gross capital gain = corrected sale price - corrected acquisition price.

Two distinct allowances: income tax and social levies

The key point, often misunderstood, is that the taxable capital gain undergoes two different allowances for length of ownership, provided for in Article 150 VC of the CGI and calculated on distinct schedules. One applies to the income-tax base, the other to the social-levies base. A single sale can therefore be exempt from income tax while remaining partly subject to social levies.

The structuring principle is as follows: the allowance starts beyond the fifth year of ownership, progresses in annual steps, and reaches 100% after a certain number of years, which entails exemption. The threshold for full exemption is not the same for income tax and for social levies: exemption from income tax is acquired earlier than exemption from social levies.

The annual allowance rates and exact durations are set by law and can be amended by a Finance Act. As an indication and subject to verification for the current year, the regime currently in force leads to income-tax exemption after 22 years of ownership and social-levies exemption after 30 years, with faster allowance schedules at the end of the period for social levies. Never treat these durations as immutable: consult the scale applicable in the year of the sale.

• Income-tax allowance: progresses per year beyond the 5th year, up to full income-tax exemption (22 years under the current regime).
• Social-levies allowance: a different, slower schedule, full exemption acquired later (30 years under the current regime).
• Consequence: between the two thresholds, the capital gain may be exempt from income tax but remain subject to social levies.
• Annual rates and durations set by law: liable to change, to be checked for the year of the transaction.

Taxation and possible surtax

After the allowances are applied, the net taxable capital gain is subject to income tax at a flat rate and to social levies, whose rates are set by law and can change. An additional tax on high property capital gains may also apply where the taxable gain exceeds a certain amount (Article 1609 nonies G of the CGI), according to its own progressive scale.

The capital gain is declared and the tax is in practice calculated and paid by the notaire when the authenticated deed of sale is signed. It is strongly recommended to have the gain calculated beforehand, as justifiable costs and work strongly influence the result.

• Income tax at a flat rate + social levies, rates liable to change.
• Possible surtax on high property capital gains (Article 1609 nonies G of the CGI).
• Calculation and payment carried out by the notaire at the time of the deed.