Everything You Need to Know About the Capital Gains Tax Exemption on the Sale of a Primary Residence in High-Demand Areas

The recent adoption by the Finance Committee of the National Assembly of an amendment requiring a minimum five-year holding period to qualify for an exemption from capital gains tax on the sale of one’s primary residence is intended to curb short-term financial speculation. 
 

A Measure to Prevent Abuse
For Pierre Jasnin, founder of Kyka, a company specializing in custom and turnkey real estate, the amendment is a good decision to prevent abuse, particularly by those who purchase properties solely to resell them after a short period—usually less than two years—in order to profit from the property’s appreciation. However, he points out that this affects only a small proportion of current transactions.

The five-year minimum holding period established by the amendment could penalize homeowners facing new or unforeseen circumstances. Although exceptions are provided for situations such as long-term hospitalization, divorce, or admission to a nursing home, there are many other reasons that may require a move. For example, the birth of a child may necessitate finding a larger home if the current one is not sufficient.
 

Financial Complexities
In some major French cities, high property prices and associated costs (notary fees, property tax, mortgage insurance) can make it difficult to purchase a home that meets these new needs. Buyers’ borrowing capacity may not be sufficient to cover higher monthly payments, forcing them to turn to renting. In this case, they will be taxed on their capital gains because they will be unable to make a new purchase.
 

Impact on the green transition
The amendment could also hinder green transition measures. The purchase of real estate, particularly older properties, is often followed by renovations that help modernize the housing stock and make it more sustainable. Although the government supports these initiatives through public assistance, such as grants for energy-efficient renovations, the bulk of the effort still falls on property owners. This process often leads to an increase in property value because it tends to make a property that no longer meets current standards more comfortable and aesthetically pleasing. It would therefore be regrettable if this amendment were to discourage this practice and slow down energy efficiency improvements in certain properties.
 

The amendment exempting capital gains on the sale of a primary residence from taxation is a measure designed to prevent speculative abuse. However, it poses potential risks for homeowners facing unforeseen needs and could complicate green renovations. Further consideration is needed to strike a balance between preventing abuse and providing the flexibility necessary to accommodate changes in homeowners’ lives.