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The main exemption from capital gains tax is for the sale of a principal residence. If this sale takes place after the sellers have permanently vacated the property in favour of a new principal residence, taxpayers may still benefit from the exemption under certain conditions. In particular, the sale of the principal residence must take place within a normal period of time, as stated in a ruling dated 7 April 2015.

Under the terms of article 150-U-II-1° of the French General Tax Code, those liable for capital gains tax on property are exempt when the transfer relates to a property that constitutes "the principal residence of the seller on the day of the sale". The tax authorities specify that to qualify as a principal residence, the property must be the home where the taxpayer actually and usually lives.

In the event of an audit, the seller who claims this exemption must be able to prove that the property sold was actually his principal residence.

The qualification of the property as a principal residence does not lapse when the owner leaves the premises for good. It is perfectly possible for the owner to benefit from the exemption even though he or she is already living in his or her new principal residence. However, they must have occupied the property until it was put up for sale, and the transaction must have taken place within a normal period.

What is a normal period for selling your principal residence?

The concept of a normal period for selling is not precisely defined by law. The notion of 'normality' is therefore left to the discretion of the tax authorities, or even the courts in the event of disagreement with the taxpayer.

In a ruling handed down by the Marseille Administrative Court of Appeal on 7 April 2015, it was pointed out that the time taken to sell a property can be considered normal when the owner has taken the necessary care, taking into account the characteristics of the property, the reasons for the sale, the economic climate and local regulations.

In this case, the judgment shows that the taxpayers successively signed several sale agreements, namely on 12 September 2005, 13 April 2007 and 18 March 2009. It also states that the wife left the property on 3 March 2006 following the purchase of a flat in Sanary-sur-Mer on 1 September 2006. The former principal residence was finally sold on 23 July 2009, approximately 3 years after the wife's departure.

In ruling that the property did not qualify as a principal residence, the Court found that the taxpayer did not prove that she had been forced to leave the marital home as a matter of urgency because of the violence to which she was a victim, and also that she did not prove how the divorce proceedings that began in September 2006 would have delayed the sale of their home. In addition, the wife did not demonstrate that the characteristics of the house or the local economic context could have justified a 3-year delay.

This ruling does not establish a fixed period for selling a property, but simply reminds us that it is all a question of facts when it comes to the concept of a normal period. Of course, the longer it takes to market a property, the more difficult it will be to prove that all the necessary steps have been taken.

We should point out here that the qualification of a property as a principal residence can be lost extremely quickly if the property is occupied by a third party, even temporarily for a very short period.