Roche & Cie

Newsletter Heritage March 2016

29 Mar 2016

The concept of principal residence and exemption of real estate gain

The capital gain realized on the sale of the principal residence is exempted.

In which case this exemption does apply?

For this, it has to be the usual and actual residence of the owner himself the day of the sale. A non-resident can thus not benefit from this exemption.

The taxpayer can prove by any means that these are his actual residence and the habitual residence is where the taxpayer ordinarily resides for much of the year. It is a question of fact. There is no tenure that would be deemed sufficient.

Leased buildings and the ones occupied free of charge by family members of the owner or third parties cannot benefit. For buildings with mixed residential and business use, the exemption is limited to the portion of the gain relating to the residential part.

As part of a single property of dismembering the usufructuary may benefit from exemption under the residence.

A vacant building at the time of the sale, but that was occupied as a principal residence until its sale, qualifies for the exemption if the sale occurs within a reasonable time of sale (time appreciating depending on circumstances in fact, generally, up to one year.)

The exemption also benefits the immediate and necessary dependencies of residence such as garages (located less than a kilometer) and discounts, parking lots, hallways, courtyards and more generally all the land surrounding the residence which is not sold as building land. For this, they must be transferred along with it.

How to be sure to be exempted?

The Administrative Court of Appeal of Nantes has recently noted that the exemption from real estate gain was a question of fact. (Judgement of the Administrative Court of Appeal of Nantes of 10 March 2016 No. 14NT01750)

Were taken into account:

– The electrical and water consumption of the sellers.

– The fact that the transferor enjoyed a lease to another unit

On the other hand, registering on the electoral roll and the indication that this was their principal residence on income tax returns were not considered sufficient evidence to qualify for exoneration.

The rates of notaries down; especially for smaller acts.

Overall these rates fall by 2.5% from 1 May 2016 and will be revised again in 2018.

For smaller transactions of a few thousand euros (up to € 9,000), the fees will drop because the notary fees for the deed will be now limited to 10% of the property value, with a minimum of 90 € .

For example, a person acquiring a plot for € 3,000 will pay 300 € to his lawyer, instead of € 920 before the reform.

The notary may, if desired, up to 10% discount for any act exceeding 150,000 euros. It will not be surrender “to the customer’s head.” This discount should a type of act concerned and be granted to all customers of the notary office.

Luxembourg companies, a few months left.

The government through the decree of March 17, 2016 published the fourth amendment to the agreement between France and the Grand Duchy of Luxembourg including the transposition predominantly real estate companies of the principle of taxation in the country of location of the building.

So as of 1 January 2017 the capital gains relating to the sale by a Luxembourg company securities of companies predominantly real estate, such as SCI shares will be taxable in France. This currently enjoys and yet for some time of the Luxembourg tax system, substantially better….

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