Calculation of capital gains on a real estate

Taxation of the capital gains on real estates

This tax on capital gains equals the difference between the price of the transfer of a property and its purchase price.

The price of the transfer

The price to keep for calculation of the capital gains tax is the total price stipulated in the act of sale, raised by the amount of a possible rectification made by the governing service.
The price of the transfer is reduced, based on written proofs, of the fees undertaken by the vendor at the time of the transfer. There are :

• commission paid to an intermediary or mandatory; fees linked to certificates and diagnostics being obligatary by the legislation; dispossession indemnity paid to the tenant by the property owner in order to sell the estate free possession; architect fees paid for the work plans providing a preliminary agreement of a building permit; fees set out by the vendor of a property in order to obtain a withdrawal of debts secured by a mortgage created on this estate.

The price of purchasing

It is in fact the price released by the seller stipulated in the act, eventually increased by a surchage of dissimulation. In the example of a donation, we retain the value calculted for the rights of free mutation to a possible diminuation of 20% in case of possession of residential property by the late person. In the case of a landed estate, other than a donation, before January 2004 and whose the estate has been divided up when the inheritance presented itself, the price of purchasing is determined by the new systems of global estate/usufruct.

The purchase price carries an additionnal surchage of a certain amount of fees or expenses dictated by law.

Assessment of the capital gains liable to tax

Gross profit achieved by the deduction of the price of purchasing and the price of the assignment benefits from 2 reductions :

• a reduction of 10% for each year of possession aftre the fifth year;
  a reduction of 1 000€ applicable operation by operation.

Tax terms and conditions

The tax on capital gains is 27% from 1.st of January 2005, including social deductions in advance. It is the lawyer, writer of the transfer act, who will levy the tax on the price given to the vendor and will pay it to the Treasury at the time of the display of the act to the enrolment form. The tax is paid then when the sale is realised.

Capital gains on real estate : estate exempted of tax( or tax relief estate).

Certain sold properties or sellers will be exempted of tax if they are in the case of capital gains achieved since the 1.st of January 2004.

Exoneration of old age pension or disability card holders.
Holders of old age pension or disability card in second or third category, are not obliged to pay if they fulfill the two conditions as follows :

• not to be liable to the wealth tax ('ISF') for the year before last preceding the one of the transfer. to have an Inland Revenue as reference for the year before last preceding the one of the transfer, inferior to 7 165 € the first year for the first quota, increased by 1 914 € for each extra half-part. This amount appears every year on the tax result.

Exoneration when the sale of residential property is realised

This exoneration matters the main residential property with its close outbuildings. The residence at the day of the transfer ought to be usual and effective residence. It is the matter of the place where the taxpayer usually lives most of the time of the year. As the opposing example when the taxpayer lives six months in one of the two residences, the authorities will retain the one that the person concerned will benefit from reductions regarding the inhabited house duty.

If the property is inhabited by ancestors or descendants, there is no tax relief. However, if two flats are located in the same building and their purchasing being necessary by the number of people of whom the taxpayer is responsible, these flats are declared a house unit and by consequence they are considered as the main residence of the person involved.

In principle, the habitation must be the main residence of the seller on the day of the sale. However, it is accepted, when the building has been inhabited until it was put up for sale, that the exoneration is not set aside provided that the sale happens in a normal period. There is no time limit in theory. Yet, in the opinion of the authorities the time of one year must be a maximum period.

The close and immediate outbuildings of the main residence for which the sale is tax relief, are also tax exempt from capital gains tax, provided that their transfer occurs simultaneously with the one of the main residence.

We may keep in particular the garages situated at a distance of less than 1 km of the principal residence and the maidservants rooms located in the same building as the main residence.

Exoneration in case of expropriation (dispossession)

The capital gains obtained at the time of the transfer of property or parts of buildings, for which a statement of public utility was pronounced with a mind to a property expropriation, are tax free. This tax relief brings the seller to use the expropriation total indemnity for the purchase, the construction, rebuilding or extension of one or several buidings in a period of twelve months counting from the date of the receipt of the indemnity.

Exoneration because of the sale amount

The sold estates are exonerated if their sale 's price is less than or equals 15 000€. This tax threshold is estimated according to an estate by an estate and not each year. In the example of the undivided (or joint) estate, the threshold of 15 000 € is valued by each quota jointly. In the example of the usufruct or the non-possession of property of an estate, the threshold of 15 000 € is valued by the estimate of the estate in the total possession of the property.

Exoneration of estates owned for more than 15 years

The capital gains tax is reduced by 10% each year of possession after the fifth year. Consequently, there is a total tax relief in the end of 15 years of owning the estate. This time is calculated by periods of twelve months since the date of purchasse until the date of transfer.

Exoneration for operations of re-allocation

If the estate results of an operation of re-allocation, the capital gains tax is counted from the date and price of purchasing based on the first estate. The appreciated surplus, in default of being exempt due to the duration of the possession, might be taxed if the re-allocated estates are sold again.

Appreciated surplus : increases of the purchase price

To calculate capital gains tax you have to deduct the sale price from the purchase price. This latter can be raised by a certain amount of fees or expenses.

The relevant fees of the purchase free of charge

They are kept back with their exact sum on the basis of written documents and must have been paid by the seller. It concerns the fees of the act including lawyer's retainers, rights of mutation paid referring to this estate.

The relevant fees of the purchase with charges

They are kept back either with their exact sum based on written documents or with contract price. We take into account the act fees including the lawyer's fees, commissions paid to the agents owed by the purchaser ( example with the mandatories' fees of a real estate agency) in the right of a mandate, enrolment rights or VAT.

For lack of having written proofs for these fees, the seller will substitute them with a contract price equal to 7,5% of the purchase price.

Construction expenses, rebuilding, extending or improvement.
It can only be taken in consideration as an increase of the purchase price, the expenses made since the completion of the building or its acquisition if it is posterior. Are retained :

• re-building and extending work that is to say an important change of the main work, that results in increasing the volume (space) or the living space;
• improvement expenses aiming to bring to a block of flats, an equipment or one element of new convenience or better adapted without modifying the buiding structure. Here in particular are to be retained : intallation of a lift , central heating, air conditionning, insulation work;
• For building land :
  • Demolition work of an old construction in order to ease the sale of the building as building land;
  • Costs of road works, mains drainage and town mains.

The contract price

The taxpayer who sells an estate acquired for more than five years, can opt for an application of a surchage of 15% of the purchase price. In that case, he is not obliged to bring proof of the works or to provide relevant documents .

Nota Bene

Important! Not to be taken in account :

• maintainance and repair work expenses including the main renovations;
• contracted loans interests for the execution of the work;
• tenancy expenses

The work has to be realised by an enterprise. Not only the work done by the taxpayer is not admitted, even if it had been started by an enterprise, the cost of materials bought by the taxpayer is not counted.

Finally, these expenses must not already be included in the assessment of The Inland Revenue tax.