I am selling my sole proprietorship: what capital gains tax exemptions apply depending on my turnover or the sale price?

A sole proprietor who sells their business may, depending on their circumstances, be fully or partially exempt from capital gains tax. Three exemption schemes exist. The first depends on your revenue. The second depends on the sale price. The third depends on your retirement. In all three cases, you must have been in business for at least five years. Beyond these thresholds, long-term capital gains are subject to a 12.8% income tax rate.

The three exemptions at a glance

All three schemes assume that the activity has been carried out for at least 5 years.

Article 151 septies: Exemption based on your revenue

The principle

If your average annual revenue excluding VAT does not exceed the threshold for your business activity, the capital gain is fully exempt. Between the two thresholds, the exemption is partial. Above the second threshold, it disappears.

An additional condition applies: the activity must have been carried out for at least 5 years at the date of the transfer.

How is the average calculated?

The average annual revenue excluding taxes for the financial years ending during the two calendar years preceding the end of the financial year in which the capital gain is realized is used.

Who can benefit from it?

The scheme targets businesses subject to income tax: sole proprietorships and partnerships. Companies subject to corporation tax are excluded. It applies to net capital gains, after offsetting. Building plots are excluded.

The method for calculating the partial exemption is not detailed here. It is calculated based on the application file.

Article 238 quindecies: Exemption based on price

This scheme applies to the sale of a sole proprietorship or a complete branch of activity, operated for at least five years. The exemption is total when the price or market value of the transferred assets, excluding real estate, does not exceed €500,000. It is partial between €500,000 and €1,000,000. Above €1,000,000, it is eliminated. It does not apply to capital gains on real estate.

Other conditions apply, according to the tax authorities: the legal structure of the seller, the size of the company, the shareholding threshold, and the absence of any relationship between the seller and the buyer. The calculation methods for the price used and for the tax-exempt portion between the two thresholds are specified by the tax authorities. These are not repeated here.

Article 151 septies A: Retirement

This scheme exempts capital gains, excluding real estate capital gains, when the seller retires. According to the tax authorities, six conditions must be met:

• the activity has been carried out for at least 5 years at the date of the transfer; ;
• the transfer is made for consideration; ;
• the transferor ceases all functions in the company and claims his retirement rights within two years before or after the transfer; ;
• the transferor does not hold, directly or indirectly, more than 50 % of the voting rights or rights in the social profits of the company which takes over the activity, this condition being assessed on the date of the transfer and during the 3 years that follow; ;
• the company being sold employs fewer than 250 employees and has a turnover of less than €50 million, or a balance sheet total of less than €43 million; ;
• its capital or voting rights are not held, continuously, at 25 % or more by one or more companies which do not meet the previous size condition.

The exemption applies to income tax. Social security contributions on exempted capital gains remain payable. The government website does not specify a maximum amount in euros for this scheme.

Beyond the thresholds: capital gains tax

If your revenue or price exceeds the thresholds, the capital gain is no longer exempt. Long-term capital gains are subject to income tax at a rate of 12.8%. Short-term capital gains are subject to standard taxation. The allocation between short-term and long-term capital gains is determined on a case-by-case basis.

Social security contributions on professional capital gains are not quantified on this page.

Numerical example (fictitious profile)

Situation. Sandrine, 55, has run a retail business as a sole proprietor for 12 years. Her annual revenue, excluding taxes, for the two reference years was €195,000 and €225,000. She is selling her business for €380,000. The net capital gain is €300,000. It is assumed that this gain is entirely long-term.

Issue. What portion of the capital gain is taxed?

Strategy. Calculate the average revenue over the two reference periods and compare it to the threshold of its activity, before signing.

Result. The average revenue is €210,000. If the capital gain is less than €250,000 and the business has been operating for more than 5 years, the capital gain is fully exempt under Article 151 septies. The income tax avoided is... €38,400 (€300,000 x 12.8 %).

Variant. Karim, a self-employed service provider, has average annual revenues of €140,000. Since they exceed €126,000, Article 151 septies does not apply. He is selling his business for €420,000, a business he has operated for nine years. The price, excluding real estate, does not exceed €500,000: the exemption under Article 238 quindecies is total, provided the other conditions are met. For a projected long-term capital gain of €260,000, the income tax avoided is... €33,280.

These figures only relate to income tax. Social security contributions are not included. Both profiles are hypothetical, and the capital gains amounts are assumptions. The figures illustrate the calculation. They do not predict your specific situation.

What changes depending on your situation

• Your business model : sole proprietorship, partnership or corporation subject to corporate tax.
• The nature of your business, which sets the applicable revenue threshold.
• Your recipes from the two reference years, and not those from the year of the sale.
• The sale price and the nature of the assets transferred.
• The length of time the activity has been in operation less than 5 years old, none of the three measures apply.
• Your retirement, which opens a separate mechanism.
• The interplay between devices, when several seem to apply: it is examined on file and is not dealt with here.

The rule depends on your situation. No results are guaranteed.