Capital Gains Tax - Entering Residential Care
14th Dec 2024
What is the liability to capital gains tax for a person entering residential care?
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Capital Gains Tax - Entering Residential Care
14th Dec 2024
What is the liability to capital gains tax for a person entering residential care?
Under French law, there is an exemption from capital gains tax on the sale of the principal residence.
However, when a person enters a residential home the property ceases to be their principal residence and an exemption from capital gains tax must be sought under separate rules. That exemption is provided for under Article 150 U of the French tax code.
In order to obtain exemption, several conditions must be met.
First, that since entering residential care the property must not have been occupied by third parties (even free of charge), save for their spouse/partner, or other members of the family who resided with them at the time of their departure.
Second, that the sale of the property must take place within 2 years after their departure from the property to enter a residential home. The 2-year period is calculated from the date the person entered residential care up to the signing of the completion deed (acte authentique). Time spent living with children or in hospital is set aside.
Third, that their taxable income (revenu fiscal de reference) must not have been greater than €26,149, to which is added additional sums for other members of the fiscal household. The additional sums are €6,109 for the first half ‘part’ of the fiscal household and €4,810 for each additional half part. Thus, for a couple the limit would be €37, 068. The figures are for 2024, but apply on the taxable income two years previously for a sale in 2024.
Finally, that the person is not liable for the wealth tax - l'impôt sur la fortune Immobilière – in the relevant tax year (2022 for a sale in 2024).
Where a capital gains tax liability does arise, the usual discount for duration of ownership applies.
In a case that was recently heard in the French courts, a couple sold a property in May 2020, which they had purchased in 1999.
The husband benefited from exemption from capital gains tax by virtue of his occupation of the property as his principal residence.
However, his wife had been in residential care since 2017.
On the sale of the property the couple were assessed as being liable for capital gains tax of €37,000, which they contested.
The court ruled that the liability of the couple to the tax must be determined by the circumstances of each of them at the time of the sale.
As a result, the couple were liable for capital gains tax on that part of the property owned by the wife (50%).