Understanding Bilateral Tax Treaties
When a UK tax resident realizes a capital gain on property in France, bilateral tax treaties come into play. These treaties determine how income is treated for taxpayers operating between two countries. In general, income from immovable property is taxable in the country where the property is located. However, the treatment of capital gains from the sale may differ.
Under the Franco-British tax treaty, a capital gain on property realized in France by a UK tax resident remains taxable in the UK, with a tax credit equal to the French tax paid. This ensures no double taxation occurs. It’s important to note that the tax credit cannot exceed the UK tax owed.
Calculating Capital Gains in France
For those unfamiliar, let’s quickly review how capital gains on property in France are calculated:
Selling price of the property
-selling expenses
-purchase price
-acquisition expenses
-renovation works
= gross capital gain
Additionally, an allowance for holding period beyond 5 years of ownership is applied, followed by income tax at a rate of 19% and social charges at either 17.2% or 7.5%, depending on the individual’s situation.
Reminder of the Requirement for a Fiscal Representative
All non-EU tax residents, including UK tax residents, must appoint a fiscal representative to calculate their capital gain on property and liaise with tax authorities.
Do not hesitate to contact us directly to know more about this obligation and if you require our help with this.
Analysis of the Franco-British Tax Treaty
Article 14 of the treaty states that capital gains on immovable property are taxable in the state where the property is located. However, Article 24 addresses the elimination of double taxation, stating that these gains remain taxable in the taxpayer’s country of tax residence after deduction of tax paid in the other country.
Therefore, you will be required to report your capital gain from France in the UK and pay taxes on it, deducting the tax already paid in France. In the event that the French tax surpasses the UK tax, the disparity will, naturally, be forfeited.
Here are the different steps of the process to make it straightforward:
Appointment of a tax representative to calculate the CGT
Payment of the French CGT in France through the notary
Declaration of the French CGT to HMRC
Payment of the UK capital gain tax on the French sale after deducting French taxes
Practical Application and Consequences of Non-Declaration
UK tax residents must declare 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 declare on time results in fines, late interest, and potential penalties.
Non-declaration carries severe consequences, including larger penalties and increased scrutiny from HMRC. It’s imperative to comply with reporting requirements to avoid such repercussions.
The author: Géraud is the co-founder of The French Tax Representative and a chartered accountant by training, specialising in real estate and international clients since 2017. He and his team help several hundred individuals and companies each year with their French tax management.