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One of the main cases in which capital gains tax is exempt is the sale of a principal residence.

The sale of a property that is the seller's principal residence at the time of sale is exempt from capital gains tax. Article 150 U of the General Tax Code states that a principal residence is a building or part of a building that is the owner's usual and effective residence. So is it still possible to benefit from this exemption when the sale takes place while the seller is actually and habitually occupying a new property?

Fortunately, the tax authorities have introduced a number of relaxations.

While the principle is that the property must be the main residence on the day of the sale, the tax authorities maintain the exemption where the seller has occupied the property until it is put up for sale, provided that the deed transferring ownership takes place within a normal timeframe and that the property has not, during this period, been let or occupied free of charge by members of the owner's family or third parties.

Although a maximum period of one year is sometimes used to describe a normal period, it should be noted that this is not true, as no time limit can be set a priori for the transfer to take place.

In a recent ruling handed down on 13 June 2019, the Paris Administrative Court of Appeal reiterated that the fact that a property has been unoccupied for several months between being put up for sale and being sold does not preclude exemption from capital gains tax on a principal residence, even if the period exceeds one year, provided that the taxpayer is able to prove that he or she has taken all the necessary steps to sell the property.

In this case, Mrs D. sold a property in the Yvelines department on 25 July 2014. The deed of sale stated that the transaction was exempt from capital gains tax, in accordance with the provisions of article 150 U-II-1° of the CGI, since the property sold was the seller's principal residence.

The tax authorities subsequently challenged this exemption and reassessed Mrs D.'s tax position. The tax authorities took the view that the exemption could not be applied because :

  1. the property sold on 25 July 2014 had not been Mrs D.'s principal residence since March 2013 ;
  2. the property, which was occupied for only nine months between June 2012 and March 2013, cannot be regarded as Mrs D.'s principal residence;
  3. the sixteen-month period during which the property remained unoccupied was abnormal, as the applicant was unable to prove that she had taken any steps to sell the property prior to March 2013, the foreseeable date of the transfer.


Mrs D. took the case to court and won the appeal.

The Administrative Court of Appeal held that a building does not lose its status as the transferor's principal residence on the date of transfer simply because the transferor vacates the premises before that date, provided that the period during which the building remained unoccupied can be considered normal.

This is the case if the transferor has taken the necessary steps, taking into account the reasons for the transfer, the characteristics of the property and the local economic and regulatory context, to complete the sale as soon as possible after the foreseeable date of the transfer of his habitual residence to another location.

In this case, Mrs D. demonstrated that the delay, even if longer than a year, was still normal given the diligence undertaken, namely :

  • A first visit by the future buyers took place on 29 March 2013.

  • Two estate agents attested to the steps taken by Mrs D. to sell the property as early as March 2013.

  • The applicant provided evidence of an initial promise to sell, dated 10 June 2013, which the beneficiaries ultimately did not sign, an advertisement that appeared in a magazine in November 2013, a new offer from the future buyer dated 15 January 2014, and the new promise to sell dated 7 April 2014, which led to the sale on 25 July 2014.

On the basis of these facts, the Administrative Court of Appeal found that the delay, even if it exceeded one year, could not be considered abnormal. Mrs D. was therefore exempt from capital gains tax on the sale of her principal residence.