In the case, a non-resident sold their French property and made an application for partial exemption from capital gains tax under the provisions in the law for non-residents.

The law states that non-residents have partial exemption from capital gains tax on the sale of a single property, provided:

• They were previously tax resident in France for at least two continuous years at the time of the sale;
• The property was sold no later than 31 December of the year following that in which the seller moved their tax domicile out of France, and;
• That it was freely available to them for the whole of this period.

The exemption is up to a capital gain of €150,000, which applies to each person for a property in joint ownership.

If the net taxable capital gain is less than €150,000, the exemption is total. If it is higher, the exemption is partial, and the excess is subject to the CGT of 19% and social charges of 17.2% (or 7.5% as the case may be).

In this case, the owner rented the property in the year of the sale, for two weeks in August, in the year of the sale, for a total of €45,000.

As the property was not therefore freely available to him, the tax authority claimed the payment of capital gains tax and social charges.

After several unsuccessful hearings in the lower courts, the owner made a final appeal to the Supreme Administrative Court, the Conseil d’Etat.

The main question put to the court was whether the rental of a property calls into question the condition of free disposition necessary to benefit from the capital gains exemption for non-residents, as provided for by the law.

The court partially annulled the earlier judgements, ruling that the temporary letting of the property does not necessarily deprive the owner of free disposal, thereby allowing them to benefit from the tax exemption.

The concept of 'free disposition' is not defined in law, and this is the first occasion when the judges have been required to determine the criteria.

In its judgement, the court stated: 'The letting of real estate for consideration is one of the circumstances which precludes, in principle, its owner from being regarded as retaining freedom of disposition within the meaning and for the application of those provisions. However, where furnished accommodation is the subject of occasional rentals during the period in question, the condition to which the provision makes its benefit subject remains satisfied, in so far as the making of the property available to third parties can be regarded, having regard to its duration, frequency and other conditions in which it takes place, as negligible'.

Accordingly, it would seem that a property let out on a traditional lease, where the tenants occupied the property as their principal home would not qualify for exemption, but a property let out for a short duration as a seasonal rental might be exempt, as in such cases the owner retains the right to dispose of the property at their convenience. As so often is the case, it would all depend on the circumstances.

International tax treaties may provide for different rules from French domestic law. Thus, some treaties assign the right to tax the capital gain to the country of residence of the transfer, others divide it between the two countries, and still others reserve it to the country in which the property is situated. It is therefore necessary to refer to the convention applicable to the particular case in order to determine the tax treatment of the capital gain.

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