A ruling by the Nantes Administrative Court of Appeal on 22 January 2015 held that the General Tax Code does not prohibit the purchase price of materials and the cost of installing them from being taken into account when calculating capital gains tax on property where the materials were purchased directly by the taxpayer from a first company and installed by a second.
Capital gains tax applies only to transfers for valuable consideration
It should be remembered from the outset that capital gains tax relates to the gain realised between the acquisition and resale of a property. On this taxable base, tax amounts to 34.5%, including social security contributions. Although the principle is simple, there are a number of adjustments and allowances that make calculating the tax relatively difficult, if not very complex, particularly in the case of joint ownership.
Correcting the cost price through works
These adjustments include the possibility for taxpayers to increase their cost price by including the cost of certain works, which may result in exemption from capital gains tax, or at least a reduction.
This opportunity relating to work on completed properties is provided for in article 150 VB-II-4° of the French General Tax Code, which states that "expenditure on construction, reconstruction, extension, renovation or improvement, borne by the vendor and carried out by a company, is added to the purchase price when it has not already been taken into account for the purposes of determining income tax and when it is not in the nature of rental expenditure".
As a result, taxpayers are prohibited from deducting the actual cost of work carried out by themselves or by a third party other than a company.
For the tax authorities, materials purchased by the owner are subject to a similar logic, even if they are installed by a company.
However, the costs of installing the materials invoiced by the company are added to the cost price, provided that all the other conditions are met.
The Nantes Administrative Court of Appeal has reversed the position of the tax authorities, ruling that a person liable for capital gains tax can increase the purchase price by including the cost of materials purchased from a shop and then installed by a company (Nantes Administrative Court of Appeal, dated 17 February 2011).
According to the Court, "although the administration maintains that, in the same way as the cost of work carried out by the taxpayer himself or by a third party other than a company, the cost of materials purchased by the taxpayer cannot be taken into account even though they are installed by a company, the aforementioned provisions of Article 150 VB of the CGI do not prevent the purchase price of materials and the cost of installing them from being taken into account when the materials have been purchased by the taxpayer from a company and installed by another company".
Confirmation from the Nantes CAA
Four years later, the Nantes Administrative Court of Appeal confirmed its position in its ruling of 22 January 2015, stating that "the provisions of Article 150 VB of the General Tax Code do not prevent the purchase price of materials and the cost of installing them from being taken into account when the materials have been purchased by the taxpayer from a company and installed by another company".
A few details about the work
Not all work can be taken into account when revaluing the purchase price. This is the case for maintenance or repair work. In such cases, or where the work is not very costly, it is often better to opt for the 15% flat-rate tax available to taxpayers who have owned their property for at least 5 years. In this case, the purchase price will be increased by 15% without the need to justify the work carried out or the cost of any work.
