The instruction of 17 April 2012 (BOI 8 M-3-12) specific to property capital gains finally dispels the uncertainties surrounding the notion of immediate and necessary dependence on the principal residence as applied to building land.
Our client owns a house in Annecy built on a large plot of land used as a garden, all of which constitutes his principal residence. He wishes to divide the land in order to sell the house simultaneously to a first buyer and part of the remaining garden to a second buyer as building land.
It is specified here that the part of the garden sold as building land must be acquired by a natural person with a view to building a house for residential use.
In the light of the following legislation, it would appear that both sales are exempt from capital gains tax.
Article 150 U-II 3° of the General Tax Code exempts from capital gains tax real estate assets " that constitute the immediate and necessary outbuildings of the assets mentioned in 1° and 2° (i.e. the principal residence), on condition that they are sold simultaneously with the said real estate assets" (on the notion of simultaneity).
According to administrative instruction 8M-104 of 14 January 2004, " When the property is sold as building land, i.e. when the land (in particular bare land, land covered with buildings intended to be demolished, unfinished property) is acquired with a view to the construction of a building falling within the scope of real estate VAT, the immediate and necessary outbuildings include only :
- premises and parking areas used by the owner as annexes to their home
(garage, car park, shed, caretaker's cottage) ;
- courtyards, passageways and, in general, all land used as access to the dwelling and its annexes.
Land surrounding the building. In other cases, this concept is interpreted more broadly. It is accepted, in fact, that the exemption applies to the whole of the land (including the base of the building) surrounding the building".
In this case, our client wishes to sell a parcel of building land in Annecy measuring approximately 1,250m² to a non-professional individual with a view to building a detached house for residential use.
As this transfer of property does not fall within the scope of property VAT, can the part of the garden sold as building land be considered to fall within the concept of "immediate and necessary outbuildings", as implied by the administrative instruction referred to above?
According to the doctrine issued by EDITIONS FRANCIS LEFEBVRE, it would seem that there was exemption in this case ("Fiscalité immobilière" Div. II § 4470).
This question of the concept of "immediate and necessary outbuildings" had never been officially settled by the tax authorities and there were differences of opinion in the literature.
Since the instruction of 17 April 2012 (BOI 8 M-3-12), there is no longer any room for doubt. This instruction states that where a vendor sells his or her main residence and a detached building plot to two separate purchasers, the latter can only give rise to an exemption from capital gains tax in respect of the area of the plot occupied by premises and parking areas, courtyards, passageways and access roads to the dwelling and its annexes.
This must be the case if the land detached and sold at the same time as the main residence qualifies as building land for VAT purposes.
The tax authorities have therefore interpreted the concept of immediate and necessary dependence restrictively. The part of the garden sold by our client to an individual to build a house for residential use will therefore not be exempt from capital gains tax.
Reminder of the texts
BOI INSTRUCTION 8 M-3-12
17 APRIL 2012
25. Immediate and necessary outbuildings of the dwelling.
The exemption also applies, all other conditions being met, to disposals of the immediate and necessary outbuildings of the dwelling within the meaning of 3° of II of article 150 U of the CGI, provided that they are disposed of at the same time as the dwelling.
In order to be exempt, the immediate and necessary outbuildings of the dwelling must form an indissociable whole with the dwelling and must therefore be sold at the same time as the dwelling. The fact that the sale is made to separate purchasers does not preclude the benefit of the exemption, all other conditions being met. For example, the exemption applies to garages or maids' rooms, which are considered to be immediate and necessary dependencies of the dwelling, even if the purchaser of the garage or room is different from the purchaser of the dwelling.
For further details on the concept of immediate and necessary dependencies within the meaning of 3° of II of Article 150 U of the CGI, please refer to D. of section 1 of sheet no. 2 of the administrative instruction of 14 January 2004 published in the BOI under reference 8 M-1-04 and to nos. 121 et seq. of this instruction.
CHAPTER 4: CLARIFICATION OF THE REGIME FOR DISPOSALS OF IMMEDIATE AND NECESSARY OUTBUILDINGS
AND NECESSARY TO THE MAIN RESIDENCE
121. The immediate and necessary outbuildings of the principal residence, the disposal of which is exempt, are also exempt provided that their disposal occurs simultaneously with that of the said buildings (CGI, 3° of II of article 150 U).
The immediate and necessary outbuildings of the tax-exempt residence must form an indivisible whole with it, and must therefore be sold at the same time as the residence itself. The fact that the sale is made to separate purchasers does not preclude the benefit of the exemption, all other conditions being met. In this situation, it is acceptable to consider that the condition of simultaneous disposal is satisfied when the disposals take place within a normal period (see on this point No. 22. of section 1 of sheet No. 2 of the BOI 8 M-1-04).
122. Treatment of land with regard to the exemption for immediate and necessary outbuildings of the principal residence. The notion of immediate and necessary outbuildings is assessed differently depending on the nature of the land.
Thus, when the land, which constitutes an outbuilding of the principal residence, is sold as building land, the exemption provided for in 3° of II of article 150 U of the CGI cannot be applied, with the exception of
outbuildings that constitute premises and parking areas used by the owner as annexes to his dwelling (garage, car park, shed, caretaker's cottage) as well as courtyards, passageways and, in general, all land used as access roads to the dwelling and its annexes (on this point, see section 1 D of sheet no. 2 of the administrative instruction of 14 January 2004 published in the Bulletin officiel des impôts under reference 8 M-1-04).
The exclusion of such transfers is due to the nature of the land concerned, i.e. building land, which cannot, in any event, be considered as immediate and necessary outbuildings.
123 Impact of the reform of VAT on real estate transactions on the exemption for immediate and necessary outbuildings. The reform of value added tax (VAT) on real estate transactions (Article 16 of Act no. 2010-237 of 9 March 2010 amending the Finance Act for 2010) does not have the effect of
call into question the doctrinal clarifications, referred to in paragraph 122, relating to the exclusion of sales of building land from the exemption provided for in 3° of II of Article 150 U of the CGI, which must therefore be adapted to the new rules resulting from the reform of VAT on real estate transactions.
124 Building land for VAT purposes. Article 257(I)(1) of the CGI, as amended by the aforementioned Article 16 of the First Amending Finance Act for 2010, provides an objective definition of building land, which requires that all land on which construction may be authorised under the documents that characterise its situation with regard to town planning rules be considered as such. Accordingly, under the terms of the aforementioned article of the CGI, building land will be deemed to be land on which buildings can be authorised under town planning documents.
The impact of the VAT reform on real estate transactions does not therefore have any consequences for the sale of building land in terms of real estate capital gains, with regard to the exemption provided for in 3° of II of Article 150 U of the CGI; in fact, the reference to VAT is only valid for qualifying the nature of the land.
As a result, sales of building land as defined in 1° of 2 of I of article 257 of the CGI, which take place at the same time as the sale of the main residence, remain subject to the real estate capital gains regime, even when the said sales are made to two separate purchasers.
INSTRUCTION 8 M-1-04
N° 7 OF 14 JANUARY 2004
"2. Outbuildings sold at the same time as the main residence
34. In order to be exempt, the immediate and necessary outbuildings of the exempt residence must form an inseparable whole with it and, consequently, must be sold at the same time as the residence.
35. The fact that the sale is made to separate purchasers does not preclude the benefit of the exemption, all other conditions being met.
(...) In this situation, the condition of simultaneous disposal may be deemed to have been met where the disposals take place within a normal period.
With regard to the concept of a normal period, the instruction states:
"22. Where the property has been occupied until it is put up for sale, it is accepted that the exemption should not be disregarded on condition that the sale takes place within the normal timeframe for sale.
No maximum time limit can be set a priori for the completion of such a sale. However, in most cases, a period of one year should be the maximum. This is a question of fact which must be assessed in the light of all the circumstances of the transaction, and in particular local property market conditions, the particular characteristics of the property sold and the efforts made by the taxpayer to put the property up for sale (press advertisements, approaches to estate agents, etc.).
In any event, where the period exceeds the normal sale period, the mere fact that the property has been put up for sale is not considered to justify exemption from capital gains tax, particularly if it appears that the asking price does not correspond to the prices prevailing on the local property market.
