November 29, 2022

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Senate votes in favor of tax reform on capital gains from real estate sales

A capital gain on the sale of a property is liable to income tax if the property is not a principal residence (Photo credit: Fotolia)

A capital gain on the sale of a property is liable to income tax if the property is not a principal residence (Photo credit: Fotolia)

During the first reading of the Finance Bill for 2023, the Senate voted this Friday, November 18, an amendment aimed at reforming the regime of capital gains from the sale of real estate.

Current Policy on Taxation of Capital Gains on Transfer of Real Estate

Capital gain on sale of real estate is subject to income tax if the property is not a principal residence. This translates into a tax rate of 19%, a social tax rate of 17.2% (i.e. a total of 36.2%) and a system of double taxation and social payments depending on the length of detention: the longer the asset is held, the lower the share of capital gains subject to income tax and social security contributions. For example, real estate sold in the first 5 years of ownership is subject to a capital gain tax of 36.2% (taxes + social security contributions). For a property held for 15 years, the capital gain is taxed at 22%. It is fully exempt from taxes and social contributions after 30 years.

An amendment in favor of reform of taxation of capital gains on sale of real estate

While this type of taxation has its utility and its economic justification, it is no longer relevant to both the housing crisis and the construction crisis of large sections of the population, the amendment’s centrist co-author explains.

The purpose of its amendment is to increase the speed of transactions. For this, it provides:

  • To reduce the effective tax rate from 36.2% to 15% after two years of detention including 9% for income tax and 6% for CSG and social security contributions
  • To curb real estate speculation by maintaining an effective tax rate of 30% on disposals after a holding period of less than two years.
  • Uniquely and permanently changing the effective common law tax rate regardless of the duration of ownership to encourage the disposal of recently held assets, similar to the systems in place in many European countries such as Sweden, the United Kingdom or Spain.
  • Abolition of current regime for deductions and exceptional deductions considering cash erosion in computing capital gains
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In order not to penalize owners who have opted for long-term holding, the provisions of this amendment apply only to disposals taking place on or after January 1, 2024, before the financial dynamics of the current taxation system reverses their sale.

Although accepted by the Senate, the amendment lacks the support of the government, which may decide to invoke Article 49.3 of the Constitution in the National Assembly.