Roche & Cie

Precisions in defining the concept of Principal Residence in Capital Gain Tax

The Administrative Court of Appeal of Nantes just reminded that the exemption from real estate gain particular was far from certain, and some details could make it fail.

Pursuant to Article 150-U-1 II of the CGI, the real estate capital gain on the disposal of property which is the principal residence of the transferor is exempt from income tax and, consequently, social contributions .

Are considered principal residences, buildings or parts of buildings constituting the usual and actual residence of the owner.

  • The residence must agree on where the taxpayer ordinarily resides for much of the year.
  • It is a question of fact for the administration to assess under the control of the Tax Justice.
  • In addition, it must be the actual residence of the taxpayer. For this reason, temporary use of a dwelling can not be regarded as sufficient for it to be characterized as a principal residence may entitlement to exemption as such.
  • In case of doubt, the taxpayer must prove by any means the effectiveness of the residence.

As part of litigation which opposed the tax authority to a taxpayer which invoked the exemption under the main residence, He will provide evidence of the reality of the establishment of his principal residence.

In this particular case, the spouses B have given, the 9 September 2009, a flat in Tourgéville (Calvados) that they had put on sale on 12 November 2007. They estimated that the capital gain resulting from this sale was exempt ‘income tax by applying Article 150 U-II-1 of CGI.

To ensure the validity of this exemption, the administration sent them two successive requests for clarifications and justifications, the 24th May and 13th of June 2012, which they refrained from answering.

In these circumstances, and since it considered that the date of the transfer that Tourgéville’s apartment was not the main residence of the spouses B administration submitted the gain to tax.

Following the rejection of their claim, the couple B asked the Caen’s TA to order the discharge of contributions resulting from this correction.

They call for the rejection of Caen’s TA.

Spouses B took advantage of the following factual circumstances:

• that in the years preceding the sale, consumption of water and electricity in their Parisian housing decreased while those of Tourgéville apartment increased significantly;

• they were registered on the electoral lists of Tourgéville

• they had shown in their tax returns on income since 2005 that the apartment located in this county was their main residence.

The Administrative Court of Appeal of Nantes argued:

  • The electrical consumption of the apartment occupied by the spouses B in Paris and that they had to Tourgéville not sufficient to demonstrate that it would have been their principal residence;
  • The charges of statements on which only include the amounts due are not sufficient to justify their water consumption in apartments and Paris Tourgéville,
  • That the fact that the spouses B are registered on the electoral lists in Tourgéville is, by itself, devoid of impact;

The Court also notes that spouses B held their Parisian apartment under a residential lease subject to the law n ° 48-1360 of  September 1, 1948.

However, Article 10-2 ° of the aforementioned law makes, in principle, the tenure of the local occupation at least eight months a year.

The appellate court also points out that the spouses B concluded a home insurance policy for the apartment, which provided an annual indwelling period of less than 90 days, while the home insurance policy for the apartment of Tourgéville inhabitation mentioned a period of over 90 days.

Given these facts, the Court held that spouses B did not establish that the apartment in Tourgéville constituted within the meaning of Article 150 of the CGI U, their main residence the day of his transfer.